Rate Hikes Roundup

As we approach the holiday season and start wrapping things up for the year, we are left with the big issue that is too big to ignore, particuarly by the central banks.
We've seen policy adjustment and changes in outlook as the narrative of 'transitory' seems to hold less and less water. 

Indeed, the Feb have dropped the idea of transitory inflation and they are doubling the pace of the taper to conclude buying by March. Will the Fed hike rates in Q1 2022? However, teh Bank of England have beaten them to it and have surprised markets for a second time, this time by hiking its key interest rate with the latest strong inflation reading tipping the balance in favour of the increase. They will also start reducing their balance sheet after the next rate hike. But when will that be? Who knows! The BoE has been unpredictable recently.

The European Central Bank has been the most cautious of the central banks, which is fairly typical as they are watching the weaker links within the monetary union. Despite inflation forecasts having been revised sharply upwards, 2023 and 2024 are seen now at 1.8%, not far below the ECB’s target, with risks tilted to the upside. Concessions have been made to ensure a smooth transition. The Pandemic Emergency Purchase Programme's net purchases will end after March 2022 and the Asset Purchase Programme will be doubled after March, but then gradually reduced each quarter until back at €20bn per month in 4Q 2022. 

In light of the BoE and Fed decisions, this was a dovish package, especially taking the inflation backdrop into consideration. While the guidance makes a rate hike in 2022 less likely, what happens early in 2023 is very much open for debate. In addition, the restarting  of PEPP net purchases is still a decision that the governing council has to take.