The Federal Reserve, the Bank of England and the European Central Bank are just some of the global central banks gearing up for their final meetings of the year in the coming week, against a background of spiking inflation and Omicron woes. U.S. stocks are back at record highs, but there is still the potential for renewed volatility after last week’s selloff. Meanwhile, economic data, including reports on producer prices and retail sales will be in the spotlight with the Fed moving closer to hiking rates. Here’s what you need to know to start your week.
Fed to discuss faster taper
The Fed will hold its final meeting of the year on Tuesday and Wednesday and Chair Jerome Powell and his colleagues are expected to discuss accelerating the wind-down of the central bank’s $120 billion a month pandemic-era asset purchase program.
In November the Fed began tapering its stimulus program at a pace that would have put it on track to complete the wind-down by mid-2022. Analysts think if the Fed accelerates the taper the process could end by March, clearing the way for an expected two rate hikes in 2022.
Investors will also be on the lookout for any signs the Fed is growing more concerned about inflation, which Powell said can no longer be described as “transitory.” Data on Friday showed that consumer prices rose at their fastest rate in almost four decades last month, underlining expectations for higher rates.
BoE, ECB decisions
The BoE and the ECB will announce their final monetary policy decisions of the year within 45 minutes of each other on Thursday and both are potentially market-moving.
Uncertainty over the Omicron Covid-19 variant means the BoE is now expected to hold off on hiking rates until February.
Jobs and inflation data will provide UK policymakers with a final insight into the strength of the economy ahead of Thursday’s meeting, with inflation forecast to reach its highest level in a decade.
The ECB is expected to announce that its €1.85 trillion PEPP pandemic stimulus scheme will end in March, but the fourth wave of the pandemic and the new Omicron variant have clouded the outlook for the eurozone economy.
U.S. economic data
The U.S. is due to release data on producer price inflation on Tuesday, which will be the highlight of the economic calendar.
The high rate of inflation is being driven primarily by supply chain bottlenecks and with those issues showing little sign of easing and companies raising wages as they compete for scarce workers, high inflation could persist well into 2022.
Labor Department data on Friday showed consumer prices surged 6.8% year-over-year in November, the highest reading in more than 39 years.
Meanwhile, figures on retail sales are due out on Wednesday, followed by data on industrial production and initial jobless claims on Thursday.
Market volatility
U.S. equities are back at record highs, following a selloff triggered by concerns over the Omicron variant and the prospect of faster tapering.
But markets could be freshly roiled by indications that the Fed is growing more worried about inflation. Signs of a more aggressive rate hike path in the “dot plot” projection of rates could also provoke renewed volatility.
Investors are also eager to hear the Fed’s view on the Omicron variant’s potential impact on economic growth or inflation.
Mona Mahajan, the senior investment strategist at Edward Jones, told Reuters the Fed meeting could bring more clarity to investors after an upsurge of volatility in recent weeks.
“It feels like the market has climbed two walls of worry already: Omicron and the path of the Fed,” she said. “I do think over the next couple of weeks we will get a little bit more certainty on both fronts.”
Bank of Japan
The BoJ is to conclude its two-day policy meeting on Friday and looks set to maintain the ultra-loose monetary policy, but debate whether to extend its emergency pandemic-relief program beyond the currently planned end-date of March 2022.
Turkey’s central bank meets on Thursday to decide whether to cut interest rates as demanded by President Recep Tayyip Erdogan, in the face of higher inflation (currently running at more than 21%) and a weaker lira.
Central banks in Switzerland, Russia and Hungary are also meeting during the week, with rate hikes from the latter two on the cards.
