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Economic preview: Decision time for Fed, BoE, ECB and BoJ

By Neil Dennis

11:07, 10 December 2021

Inflation vs Covid concept photograph
Dilemma for central banks – Photo: Shutterstock

Next week’s economic calendar is loaded with pre-Christmas monetary policy meetings. Faced with rising inflation rates and the onslaught of the Delta wave and the new threat of the Omicron variant, central banks in the US, UK and the eurozone have tough decisions to make.

The Bank of Japan also holds a policy meeting next week, but the country’s benign inflation outlook provides the central bank with a clear decision to leave policy settings on hold next Friday.

On the data front, the UK and eurozone update on inflation, while the US publishes a raft of regional Federal Reserve surveys on the manufacturing sector.

Federal Reserve open market committee (FOMC) meeting

In recent weeks the Fed has turned noticeably hawkish, with chairman Jerome Powell – at a congressional committee hearing last week – suggested that “transitory” was no longer a suitable description of inflation pressures.

Indeed, Powell hinted at the hearing that it might be appropriate to speed up the pace of tapering asset purchases at next Wednesday’s FOMC meeting. Conversely, he also recognised the risks to economic growth posed by the new Omicron variant of the coronavirus.

Markets appear to be backing the hawkish theme, however, speculating that the sooner asset purchases end, the sooner interest rate hikes will follow. The dollar index has rallied 2% since the end of October, despite a slight pullback in the last two weeks.

Jonas Golterman, senior markets economist at Capital Economics, said: “Unless the new variant, or investors’ response to it, derails the FOMC’s shift towards a more rapid pace of policy normalisation – and Powell’s comments suggest that the bar for that may be quite high – we think that the dollar’s rebound will continue.”

Bank of England policy meeting

The emergence of Omicron prompted Prime Minister Boris Johnson to announce tougher measures this week – notably a work-from-home advisory that is likely to have an economic impact on some smaller service sector businesses.

Markets had been eyeing a 15 basis points increase to take the base rate from 0.1% to 0.25% at next Thursday’s Monetary Policy Committee (MPC) meeting, but the latest pandemic response could prompt the MPC to wait a little longer before pulling the trigger.

Catherine Mann, who joined the MPC in September and voted to leave rates on hold at the last meeting, said last week at an event hosted by Barclays, that it was “premature to even talk about timing” of the first rate hike.

Fellow MPC member Michael Saunders, who voted to raise the base rate to 0.25%, said in an online webinar last week that – due to the Omicron variant – it could be appropriate to wait for more evidence on its impact on public health and the economy, but warned also that continued delay could be costly.

“We think the MPC will press ahead and raise the bank rate on Thursday, but the decision looks very finely balanced,” said Samuel Tombs, senior UK economist at Pantheon Macroeconomics.

He added: “Bad news before then on the efficacy of current vaccines against the Omicron variant, or clearer signs that consumers are taking evasive action could easily lead to inertia.”


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Robert Wood, UK economist at Bank of America, calls it the other way: “It’s a close call but we expect the BoE to leave interest rates unchanged next week, due to Omicron uncertainty.”

European Central Bank policy meeting

ECB president Christine Lagarde had, until recently, stuck rigidly to the belief that much of current price pressure was “transitory”.

While this view has begun to weaken, it’s likely not enough to see the central bank next Thursday tighten policy by more than has already been announced.

At its previous meeting, the ECB announced it was phasing out its Pandemic Emergency Purchase Programme, with an endpoint seen in March.

Since the last meeting, however, tighter restrictions to combat the fourth wave of Covid-19 have been introduced into parts of the region. Meanwhile, concerns that the new Omicron variant will add to the tide of infections sent markets into turmoil in the past two weeks.

“The problem with ending the PEPP is the ‘cliff edge’ effect, as it currently runs at some €60bn per month,” said Carsten Brzeski, global head of macro at ING.

He added: “The central bank could officially confirm the end next week but might want to play it safe and simply postpone a decision until the early February meeting.”

Suggestions that the ECB might introduce a third asset purchase programme – perhaps with geographic flexibility – to smooth the transition that knocked the euro this Thursday, and next Thursday’s meeting will be pivotal.

Brzeski concluded: “A gradual recalibration of all emergency measures to prepare for the possibility of more permanent inflation is a very logical step and good risk management at the current juncture.”

Best of the rest

Inflation data in the UK will be a key focus for the MPC a day ahead of its policy decision on Thursday. Hitting a decade high of 4.2% in October, the annual headline inflation rate is expected to have increased to around 4.6% in November.

The eurozone doesn’t get its latest inflation report until the day following Thursday’s ECB meeting.

Economic calendar 13-17 December


  • UK - Financial stability report


  • Japan - industrial production October
  • UK - unemployment rate October
  • Eurozone - industrial production October
  • New Zealand - third-quarter current account


  • UK - inflation CPI November
  • UK - DCLG house price index October
  • UK - Markit manufacturing PMI December
  • US - Empire state manufacturing index December
  • US - Federal Reserve interest rate decision


  • Australia - unemployment rate November
  • China - retail sales November
  • Eurozone - trade balance October
  • UK - Bank of England interest rate decision
  • Eurozone - European Central Bank interest rate decision
  • US - Philly Fed manufacturing index December
  • US - retail sales November
  • US - industrial production December
  • US - Kansas Fed manufacturing index December


  • UK - GfK consumer confidence December
  • UK - retail sales November
  • Japan - Bank of Japan interest rate decision
  • Eurozone - inflation CPI November

For next week’s full economic calendar, click here

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