LONDON: With the US Federal Reserve expected to leave interest rates on hold this week, the market will be focusing on policymakers for clear signals on when the central bank will make its first interest rate hike in nearly a decade.
World shares ended last week on a muted note as Greece’s situation took a turn for the worse when the International Monetary Fund’s delegation walked out of negotiations in Brussels citing ‘major differences’ with Athens over how to save the country from bankruptcy.
The European Union has also been telling Greek Prime Minister Alexis Tsipras in more strident terms to stop gambling with his cash-strapped country’s future and make the big decisions needed to avert a potentially devastating default.
For Fed watchers, the main point of interest will be any change in the nuances of bank Chair Janet Yellen’s language after the central bank’s announcement.
“We still suspect that Wednesday will be important in terms of communication, given that it is a press conference meeting,” said Philip Shaw, chief economist at Investec.
Wall Street’s top bond dealers, who just three months ago had a June move pencilled in, now expect the Fed to begin raising rates in September, followed by another hike before the end of the year.
“We don’t think the Fed will explicitly reference September, but we do think they will harp on their data dependence and give a nod that a hike this year is likely if the data remain constructive,” said Tom Porcelli at RBC Capital Markets.
US industrial output probably increased in May after five months of contraction, data on Monday are expected to show. Figures on Tuesday will likely point to a sustained improvement in the housing market, offering more confidence that the economy has regained momentum after a dismal first quarter.
Minutes from the Bank of England (BoE)’s June policy meeting, due on Wednesday, will according to a Reuters poll show all nine members of the Monetary Policy Committee voted to keep British interest rates at a record low of 0.5 per cent this month.
Like with the Fed, economists have been consistently pushing back expectations for when the BoE will make its first move. Late last year, the bank rate was predicted to have already risen by now. The current consensus suggests it will be early 2016 before it will move up 25 basis points.