ECB to Hike Rates Again; US Inflation & Retail Sales in Focus Ahead of Fed Meeting
The European Central Bank (ECB) looks set to hike interest rates by another 50 basis points at its meeting on Thursday after already raising rates by 3 percentage points since July in a bid to tame inflation. On Thursday, the European Central Bank (ECB) is highly likely to increase the deposit rate to 3.0%, which would be the highest rate since 2008, with a third consecutive 50 basis point hike. Nevertheless, the situation could become more intricate as a rift between the ‘hawks’ and ‘doves’ in the Governing Council is widening.
Meanwhile, reports this week expected to show still-hot US inflation and a backslide in retail sales round out the last of key economic data markers for Federal Reserve policymakers ahead of their upcoming meeting. At the start of March, the market anticipated a quarter of 1% increase in rates by the end of the month. One week later, the CME FedWatch tool’s forecast showed that a one-half of 1% rate hike was more likely to happen when the Federal Open Market Committee meets.
The discussion about an economic recession subsided earlier this year due to a robust fourth-quarter report on gross domestic product and a massive, unexpected increase in seasonally-adjusted new jobs in January. Washington, D.C. surprisingly tops Google Trends’ list in terms of searches related to recession. This is likely due to the frequent meetings of the Federal Reserve Board occurring every six weeks, as well as the current debate between the Republican-led House and President Joe Biden concerning raising the U.S. debt limit.
The market’s expectation for the Federal Reserve’s next interest-rate move will be finalized on Tuesday with the release of the final data point. It is anticipated that the core consumer price index, which omits food and energy and gives a more accurate indication of underlying inflation, will increase by 0.4% for the third consecutive month in February. According to the median estimate of economists surveyed by Bloomberg, there will be a 5.5% increase from a year ago.
The decision on the ECB’s interest rate will be a major focus in the European area. It is almost certain that there will be an increase of 0.5%, however, investors will be paying close attention to indications of what the plan is for May and beyond, which will be determined by the new quarterly predictions.
Inflation remaining robust for another month does not necessarily mean a recession is imminent; however, it will continue to challenge the Federal Reserve’s resolve and try investors’ patience. At WAMU public radio station in Washington, D.C., Tom Hudson is the Chief Content Officer.
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