Central rate setters, under pressure, maintain their stance on both sides of the Atlantic
Central banks on both sides of the pond are gearing up to set the tone for interest rate changes this week, as Donald Trump's trade war casts a looming shadow over the global economy.
On Wednesday, the US Federal Reserve and on Thursday, the Bank of England will announce their latest policy decisions, but they just might hint at the rhythm of future rate cuts. Pressure is mounting for Fed chief Jerome Powell and Bank governor Andrew Bailey to speak up. In the UK, concerns are escalating that the bright start to the year for the economy could sour, after recent figures revealed a 0.3% decline in April GDP, partly blamed on tariffs and Labour's decision to boost employer National Insurance Contributions. The job market also took a hit, losing 250,000 jobs since the autumn's budget.
Bailey recently told MPs that he's taking a 'cautious' approach to interest rates for now but will act 'aggressively' if needed in the face of global uncertainty. This has fuelled hopes of a rate cut later this summer, especially if Wednesday's official figures show inflation easing as expected. Thomas Pugh of accountancy firm RSM claims it's a 'foregone conclusion' that the Bank will keep rates on hold at 4.25% on Thursday. But Pugh adds: 'Looking ahead, the deterioration in the labor market, weaker economic growth along with inflation… should give the Bank all the ammo it needs to cut rates again in August.'
Meanwhile, Powell finds himself under a different kind of pressure in the US. While jobs growth has slowed, tariffs haven't produced a drastic impact on economic data, with inflation remaining moderate. This has prompted markets to keep betting that the Fed will maintain its 'wait and see' policy, waiting to respond to Trump's unpredictable policymaking. But Powell's inaction hasn't pleased the President, who has called Powell a 'numbskull' while demanding a rate cut.
Michael Krautzberger, head of public markets at AllianzGI, notes that Fed comments 'have highlighted a reluctance to alter the policy stance in the near term.' Overall, the expected impact of global economic uncertainty on the pace of interest rate cuts by the US Federal Reserve and the Bank of England is mixed but generally signals a cautious or delayed approach.
Investors might find it prudent to reassess their personal-finance strategies, particularly those involving stocks and mortgages, given the anticipated interest rate changes this week. For instance, a potential rate cut by the Bank of England could impact the return on investment for those who hold British stocks. Similarly, the US Federal Reserve's decision could influence mortgage rates, thereby affecting home-buying decisions and overall business investments. It's worth noting that the cautious approach of central bank governors could delay the rate reductions, as suggested by the latest economic data and the ongoing trade war. However, the unpredictable policymaking of certain governments, like the US, could pressure central banks to act more aggressively in the face of global uncertainty, which may alter the investing landscape. Therefore, keeping a close eye on developments in both Central banks, finance, and personal-finance strategies might prove beneficial in the coming months.
