3 central banks set to raise rates this week

The week ahead starts slow as there is a bank holiday in Japan and the United Kingdom. However, it is just the calm before the storm, as several central banks will issue their new monetary policy later this week.

FOMC Economic Projections

It all begins on Wednesday, with the most-awaited central bank decision. The Federal Reserve of the United States is set to deliver another jumbo rate hike of 0.75%, bringing the funds rate to 3.25%.

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Some market participants expect the Fed to hike by 1%, which may be the case. Regardless of the decision, volatility is expected to go through the roof, especially when the Fed presents the FOMC Economic Projections.

Fed’s decision is, by far, the most important event of the trading week and will likely impact the market for the days and even weeks to follow. Last week, the release of the August CPI report triggered a four standard deviation move in the market, something extremely rare but likely to happen again this week during the FOMC press conference.

SNB to deliver a large hike as well

The Swiss National Bank (SNB) meets quarterly, and this Thursday is about to announce a 0.75% rate increase as well. This is a historic decision from the SNB because it will mark the end of negative interest rates.

Interestingly, the market has already priced in Thursday’s decision, another 50bp rate hike in December and a final 25bp hike in March. Therefore, expect the Swiss franc to be on the move considering that the SNB ends negative rates and hikes well into the positive territory.

BOE to hike by another 50bp on Thursday

The Bank of England (BOE) followed on the Fed’s path and hiked the rates early in this tightening cycle. On Wednesday, the market expects another 50bp rate hike and the official bank rate to reach 2.25%.

Most market participants expect the BOE’s terminal rate to reach 3.25% by December 2022, so more rate hikes are on the table in November and December. However, the risk is that the BOE will surprise and frontload rates in order to tame inflation as the prices of goods and services rose dangerously close to double-digit territory.