Top central banks go their separate ways in 2022

FILE PHOTO: Image of the Federal Reserve Board building in Washington
FILE PHOTO: The Federal Reserve in Washington, U.S., November 22, 2021. REUTERS / Kevin Lamarque / File Photo

December 16, 2021

By Howard Schneider, William Schomberg and Balazs Koranyi

(Reuters) – Top central banks on Thursday will announce policy moves to steer their economies through increased uncertainty from the pandemic and high inflation, with some banks being re-elected. set to keep money cheap in 2022 even as the US Federal Reserve tightens.

The Fed on Wednesday doubled the pace of its bond-buying cuts, while forecasts from its policymakers suggested as many as three rate hikes next year.

What its peers are willing to follow will become apparent in the next 24 hours, with a series of meetings at the Bank of England, the European Central Bank, the Bank of Japan and others.

Out of those three, however, only the BoE is likely to take more than a small step in cutting back on the massive support provided to its economy through the pandemic.

That could set the stage for a tumultuous 2022, with the Fed determined to end its asset purchases as quickly as possible and start raising rates shortly thereafter, and others more hesitant in decisive turn in that direction.

Earlier, on Thursday, the Swiss National Bank maintained its extremely loose stance with its policy rate pegged at -0.75%. Switzerland’s inflation – while rising – remains much lower than elsewhere, just 1% next year, falling to 0.6% in 2023.

“The SNB is maintaining its expansionary monetary policy,” it said in a statement. “Therefore, it ensures price stability and supports the Swiss economy recovering from the impact of the coronavirus pandemic.”

Norway’s central bank, which rallied in September on the back of an economic recovery, continued to add as expected and said it was more likely to follow.

Now eyes are on the BoE, which at 1200 GMT could become the first central bank to raise rates. However, the UK is also where the conflict between the rapidly spreading Omicron variant and inflation is at its most vivid.

Daily coronavirus infections in the UK are at their highest level since the first days of the pandemic, forcing Prime Minister Boris Johnson this week to impose new restrictions.

The first reading of the Purchasing Managers’ Index (PMI) for December on Thursday showed that Omicron hit UK travel and hotel firms – a day after data showed consumer price inflation. used at a decade high.

“There is now a risk that inflation is actually gaining in popularity…but this is balanced against the threat to the economic recovery from variation,” said Ellie Henderson, an economist at Investec bank. New Omicrons”.


Investors and economists don’t expect anything nearly as bold this week from the BOJ or the ECB – all the more so after preliminary PMIs for the eurozone also showed business growth faltering. in December.

The ECB, which has emphasized its inflation target for much of the past decade, is expected to be one of the last to tighten policy and the debate will instead focus on how to do so. structure a more modest measure of overall stimulus support.

The ECB’s compromise will likely be clearer on its policy framework in 2022, with details to be filled in as policymakers are confident that inflation, currently at more than double with the bank’s 2% target, which will quickly drop by 2022.

What seems certain is that the amount of bond purchases under the Pandemic Emergency Purchase Program of 1.85 trillion euros will be cut next quarter then decrease at the end of March. However, a long-term Asset Purchase Program would be enhanced, partially offsetting this lost stimulus.

In Japan, the consumer-level inflation that is ripping off other parts of the globe remains mostly absent. As a result, corporate asset purchases were discussed only at Friday’s BOJ meeting.

Even if others aren’t hard on the Fed’s heels, Powell and the Fed appear to have set the agenda for a tumultuous 2022 as central banks map out their paths to exit, despite albeit at significantly different speeds.

“You’ve seen it in his congressional speeches that it’s sooner to tighten than to worry about the health of the global economy,” said Vincent Reinhart, chief economist at Dreyfuss & Mellon. ” Vincent Reinhart, chief economist at Dreyfuss & Mellon. The Fed and other central banks are “transmitting the feeling that they are headed for the exits. Modern central banks are largely around managing expectations, and they don’t want to be seen as being behind the curve.”

(Additional reporting by Leika Kihara in Tokyo and Balazs Koranyi in Frankfurt; Writing by Dan Burns and Mark John; Editing by Edwina Gibbs and Catherine Evans) Top central banks go their separate ways in 2022

Bobby Allyn

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