Written by Shane Balkham.
The Federal Open Market Committee (FOMC) will meet at the beginning of May, and we are already seeing the rhetoric in order to manage market expectations. From the minutes and forecasts from the March meeting, we know that there is the prospect of six further rate rises this year.
Setting the scene for these rate hikes, we had a speech from James Bullard, President of the St. Louis branch of the Federal Reserve, and most importantly a voting member of the FOMC. On the back of March’s inflation reading in the US of 8.5%, he is calling for an increase in the speed of executing the hikes and is likely to vote for a larger hike than the previous 0.25% move. It is expected that several members will call for a rise of 50-75bps next month. For Bullard, there is a critical importance of the Fed maintaining its creditability in combating inflation, as monetary policy decisions walk a difficult and fine line in taming inflation without causing a recession.
The Bank of England also faces the same navigation problem, as inflation in the UK rose to 7% for March adding pressure for interest rates to rise. In the minutes from March’s Monetary Policy Committee meeting, the Bank of England expects inflation to peak at around 8% in Q2, recognising the large shock to the economy from the war on Ukraine. The Bank of England also meets at the beginning of May, and we might have a fourth consecutive meeting where interest rates are hiked.
Before the central banks have their next meetings, we have France deciding on their next President. On Sunday, French voters will choose between the incumbent President Emmanuel Macron, or the far-right rival of Marine Le Pen. It is expected to be an extremely tight election race, with both contenders looking to secure the voters from the ten eliminated candidates from the first round. Will Le Pen’s manifesto of protectionism and localism see France turning to the right?