This week's outlook: The Fed's decision will trigger a "super week", and the Bank of Japan may not be outdone

Super central bank week begins this week, with the Federal Reserve, Bank of Japan and the United Kingdom releasing their September interest rate decisions. The market generally expects this to be the starting point of the Fed's easing cycle. Former FOMC member Bill Dudley and Wall Street Journal reporter Nick Timiraos, who is regarded as the "Fed mouthpiece", have released signals that the Fed may be "dovish" in cutting interest rates by 50 basis points. . Japanese officials said the Bank of Japan is still likely to raise interest rates further "hawkishly". Republican presidential candidate Donald Trump said his family's new financial project, World Liberty Financial (WLFI), was officially launched this week.

After the release of the U.S. Consumer Price Index (CPI) report early last week, the market almost believed that the Federal Reserve would cut interest rates by 25 basis points in September, but the situation has changed since last Thursday (September 12). Former New York Fed President Dudley said the Fed is justified in cutting interest rates by 50 basis points next week.

Nick and the Financial Times also reported that the Fed faced a difficult choice between cutting interest rates by 50 basis points or 25 basis points. Subsequently, the market's bets on the Fed's sharp interest rate cut this week significantly increased to 50%.

Analysts at TD Securities, looking ahead to this week's Federal Reserve decision, noted that the first rate cut is not always the deepest. They note: “The Federal Open Market Committee (FOMC) is widely expected to launch its long-awaited easing cycle at its meeting on September 18, with the committee cutting interest rates by 25 basis points to 5.00%-5.25%. Although we think Some Fed officials will advocate a faster start to the easing cycle, but we expect the FOMC's first move to be conservative."

“The dot plot will be the most prominent part of the Fed’s guidance because it will convey not only the actions the committee plans to take at its November and December meetings, but also how quickly the median Fed official plans to return monetary policy to a more Neutral status. Based on their new forecast, we expect this to be probably late 2025 or early 2026."

The Fed's new Summary of Economic Projections (SEP), particularly the UE rate and core PCE inflation, will also be closely watched as they will provide new information about the Committee's ability to respond in a world where risks to inflation are declining and risks to full employment are rising. Analysts at TD Securities also said: "Fed Chairman Powell's post-meeting press conference will also help set policy expectations. We expect his message to be very similar to Jackson Hole's, and our expectation for the Fed's forward guidance is that Roughly dovish.”

“Looking ahead, we expect the FOMC to ease policy with a further 25 basis points of rate cuts in November and December. We also expect the Fed to continue cutting interest rates by 25 basis points at each meeting next year until reaching 3% in October 2025. We The upper end of the federal funds target range is forecast to reach 4.75% by the end of 2024 and 3.00% in 2025.”

"As we have noted previously, the key risk to our view is that Fed leadership finds itself needing to return to a neutral stance sooner than we currently anticipate as both parties' mandates return to or are about to reach a steady state. Even if the FOMC Deciding to start the easing cycle cautiously, Fed officials can also accelerate the pace of interest rate cuts after September. "

In addition, regarding the Bank of Japan, foreign media quoted multiple sources as saying that the bank is likely to maintain the status quo at its monetary meeting in September. The main reason is that after the Bank of Japan raised interest rates in July, the market's doubts about the economic prospects of the United States increased, causing global financial markets to fall into turmoil. In order to confirm whether the market has stabilized after the July interest rate hike, so in the short term The possibility of further interest rate hikes is low, but it is likely to be raised again by December.

Naoki Tamura, a member of Japan's Policy Council, said he was "concerned that upward risks to inflation are intensifying." Recent comments from some Bank of Japan board members indicate that Japan may still raise interest rates in the future, despite the policy rate being raised to 0.25% in July.

The Bank of England is also expected to remain on hold despite the country's economic growth unexpectedly stalling in July. Analysts polled by Reuters generally expect the Bank of England to remain on hold in September after cutting interest rates in August. Nearly 80% of respondents also expect that the government may resume interest rate cuts again in November.

Key economic data this week:

On Monday, the U.S. Federal Reserve Bank of New York manufacturing index for September;

On Tuesday, U.S. retail sales monthly rate in August;

On Wednesday, the UK August CPI monthly rate and the UK August retail price index monthly rate;

In the early hours of Thursday morning (Beijing time), the Federal Reserve released a summary of its interest rate decision and economic expectations;

On Thursday (Beijing time), Federal Reserve Chairman Powell held a monetary policy press conference;

On Thursday, the number of initial jobless claims in the United States for the week ending September 14, and the Philadelphia Federal Reserve Bank's manufacturing index for September;

On Friday, the Bank of Japan announced its interest rate decision;

On Friday, Bank of Japan Governor Kazuo Ueda held a monetary policy press conference.