Three decisions in one week
Three of the world's most influential central banks will announce policy decisions this week while investors weigh stubbornly high energy prices and their effect on markets, alongside growing doubts about whether the huge sums being spent on artificial intelligence will pay off. The Federal Reserve acts on Wednesday, the European Central Bank on Thursday and the Bank of Japan on Friday.[S1][S2][S3]
Energy costs have climbed further because of the risk that fighting in the Middle East escalates again. That increase is expected to revive inflation and to push central banks toward keeping rates elevated for a longer period.[S1]
The Fed and the dollar
Last month the Federal Reserve lifted its benchmark rate by a quarter percentage point, putting it in a 3.75%–4% band. Since the US central bank tends to set the direction for peers worldwide, the moves it makes and the signals sent by Chair Kevin Warsh are likely to influence financial conditions across the globe.[S1]
Inflation that has stayed high in the United States has curbed hopes of easing and strengthened the view that rates could remain high for longer. Analysts are also watching whether policy is tightened further and what that would mean for the dollar and for Treasury yields.[S1]
Eurozone pressure and French bonds
For the ECB, the main questions on Thursday will be the path of eurozone inflation, the growth outlook and how higher energy prices might affect price stability. The bank lifted its three key rates by 25 basis points in September and is expected to hold them this time, though many expect increases at later meetings given expensive oil and inflation risks.[S1]
Protests that have been growing in France continue to put public finances under strain and are adding to selling pressure on French government debt. The yield on France's 10-year bond reached 5.07%, its highest since 2002, and moved above the US 10-year Treasury yield for the first time since 2013.[S1]
German producer prices rose 1.9% month-on-month and 6.7% year-on-year in September, above forecasts and faster than in August. The annual increase was the largest since March 2023.[S1]
Japan's export-led economy
The Bank of Japan meets on Friday after raising its policy rate to 1.25% last month. Higher oil prices caused by Middle East tensions are adding to energy and inflation worries, especially for Asian economies that rely on imported energy.[S1]
Japanese annual inflation was 2.1% in September, matching forecasts, while core inflation exceeded 2% for the first time in nine months, supporting expectations of a tighter stance. Exports grew 16.7% year-on-year in September but fell short of forecasts and slowed from August, with strong demand for semiconductors and AI-related products driving the gains. The BoJ is expected to hold rates this week but may raise them in December, with the inflation outlook, wage growth and economic activity guiding its policy.[S1]
