Week Ahead: Lenders, Bank of England, and Fed in Focus

As the week begins, all eyes are on the banking sectors in Europe and the United States, waiting to see whether or not calm will be restored. Against this backdrop, policymakers from the Bank of England and the Federal Reserve are preparing to make decisions regarding interest rates.

Bank of England

Although it is less likely to raise rates, the consensus is for a 25 basis point hike in Bank Rate to 4.25%. However, the hike is not a foregone conclusion, as market estimates of the so-called terminal rate have fallen from 4.8% to 4.25%.

Federal Reserve

At its Wednesday meeting, the Federal Reserve’s consensus is to increase the target range for the Fed funds rate to 4.75-5.0%, but a pause is also possible. However, the implied odds of a 25bp Fed hike are 62.0% according to Fed funds futures, indicating that it’s more likely to happen than not.

The Federal Reserve will have to make a decision based on whether or not they feel that the banking sector has sufficiently calmed down. Former IMF managing director Kenneth Rogoff believes it would “probably” opt for a 25bp hike if the banking sector has stabilized. If not, they may need to pause inflation rates north of 5%.

Related Facts

• Analysts believe that market forecasts are too “binary.” Instead, they suggest that temporary cuts are plausible, particularly for the Fed.
• BofA analysts shifted their baseline policy path from “predominantly to the upside” to “more balanced and wider.”

Key Takeaway

The banking sectors of Europe and the United States are under scrutiny as the Bank of England and the Federal Reserve prepare to meet regarding interest rates. Although consensus predicts a 25 basis point hike in Bank Rate and the Federal Reserve’s target range for the Fed funds rate, volatility may pause the Federal Reserve’s policy direction.

Conclusion

The current banking landscape in Europe and the United States could become more volatile in the coming weeks, and policymakers must be vigilant in managing the situation. As a result, these two central banks will need to decide whether to continue guiding higher or take a temporary pause while they assess the situation.