The week that is coming to an end was full of central banks’ monetary policy meetings - the last ones for 2021. Investors had a lot of expectations of the week, so we would like to go over how many of them became a reality.
Arguably the most important meeting of the week was that of the Federal Reserve, which took place on Tuesday and Wednesday. The markets expected that the Fed would announce a faster timeline for unwinding asset purchases and some more concrete plans about possible rate hikes in the near future.
Both of those things happened. Firstly, the Federal Reserve stated its bond-buying program would end by March 2022, up from June in the older schedule. In addition, due to the inflation rate in the United States climbing to its highest level in 40 years, the Fed also stated that it is preparing for roughly three rate hikes next year.
This hawkish turn, despite the emergence of Omicron, strengthened the positions of the US dollar against every other currency initially.
Meanwhile, the Bank of England shocked investors by implementing its first rate hike since the coronavirus pandemic began. This was also the first hike within the G7.
Inflation in the United Kingdom has also risen above the forecasts, but due to the spread of the Omicron variant and the possibility of new lockdowns in the UK, most experts thought the BoE would be more cautious about switching its approach.
A moderate amount of caution was demonstrated by the European Central Bank at its last gathering before the year’s end. The ECB announced that it will also end its pandemic stimulus program in March, just like the Federal Reserve. However, it noted that its regular asset purchases program will still run. The regulator will try to use that to help out the eurozone through the continuing coronavirus crisis.
Earlier today the Bank of Japan also held its last meeting of the year. Despite inflation being consistently much lower in Japan than it is in other developed economies, the Bank of Japan followed the Federal Reserve and the ECB in announcing that its pandemic emergency stimulus scheme will end in March 2022. However, the BoJ is not looking to raise interest rates anytime soon, considering the deflationary tendencies of the Japanese economy.
