Central banks come thick and fast over the next 24 hours or so with the FOMC meeting tonight and then the ECB and Bank of England meetings tomorrow early afternoon. Policymakers current challenge is about managing expectations amid a geopolitical situation that remains very uncertain. Policy changes continue to look remote but some banks will worry about their inflation fighting credibility, which seems more sensitive to the immediate energy shock than the broader downbeat macro impact.
Jay Powell’s swansong at the FOMC
Consensus expects the Fed to leave rates unchanged at 3.50-3.75% at the April meeting. We note a Reuters poll of 103 economists showed 56 respondents now expect no move before the end of September, a notable shift from the late-March survey, where almost 70% expected at least one rate cut. The change largely reflects the impact of the ongoing Middle East conflict, which has lifted energy prices and effectively removed market pricing for near-term easing. The inflation backdrop has worsened, with economists revising up their PCE inflation forecasts, the Fed’s preferred gauge. Even some of the more dovish Fed officials have acknowledged that inflation remains too high, reducing the urgency to cut rates. However, tariff-related inflation should prove transitory and energy pressures are unlikely at this stage to feed meaningfully into core inflation with longer-term inflation expectations remaining relatively anchored so far.
That means officials are in a comfortable position of being able to wait and see how the energy supply outlook evolves and how the economy will react. There will be no firm forward guidance as economic growth remains resilient but is slowing. The Fed will not release updated economic projections at this meeting; the next SEP is due in June. At the March meeting, officials pencilled in just one rate cut before year-end. On the leadership side, nominee Kevin Warsh appeared before the Senate last week and called for “regime change” at the Fed. Chair Powell is likely to face questions about this at his final post-meeting press conference. The risks are he leans hawkish which would support USD, though the megacap earnings may have a say in this too.
ECB hiking expected, just not yet
The ECB is expected to hold the Deposit Rate at 2.00% given the limited amount of hard data or concrete signs of second round inflationary effects. Markets predict up to 60bps of tightening in 2026, beginning in June and a second hike in July. Given expectations for a hold this time, focus will be on the statement for rate hike signals, and then President Lagarde’s press conference on how likely a pre-summer increase is. She certainly will not want a repeat of the hike too early error another French ECB chief, J-C Trichet, made just before the EZ crisis in 2011.
Overall, the ECB is likely to avoid pre-committing to action, but keep the door open to summer tightening, with optionality the key watchword as numerous policymakers have outlined in recent weeks. Several officials have indicated a preference for waiting for more information before considering action. As such, June’s announcement and updated forecasts are likely to be the near-term meeting to watch. The euro may go back to being driven by risk sentiment and oil fairly quickly after the meeting, unless Lagarde & co are explicitly hawkish.
BoE to sit on hands
Policymakers at the Old Lady are expected to maintain the Bank Rate at 3.75% and await further information on the impact of the Middle East conflict on the UK and global economy. However, the decision may well be subject to dissent, with a recent inflationary PMI series, a hawkish decision-making-panel and hotter than expected wages and services inflation arguing in favour of action, though this was offset by cooler-than-expected core CPI in March.
After the BoE’s hawkish turn in March, investors quickly started to price in near-term hikes but from mid-March to mid-April much was priced out again not least because Governor Bailey has been quite clear that the BoE is in no rush. More recently, market pricing has taken another turn on the back of deteriorating energy markets and the macro data coming in mostly on the hawkish side.
Other officials like Chief Economist Pill have said they need to be cautious when it comes to reacting to high-frequency developments, while Mann has expressed concern that the shock could show up in wage expectations. Overall, policymakers will likely want to wait for more data, evidenced by Greene outlining that second round effects could take months to show, before taking action, particularly as domestic activity was relatively weak even before the conflict. Money market pricing is indicative of an April hold, but there is currently more than 60bps of tightening implied by end-2026.