How big will the Federal Reserve go in its next rate rise?

Will the Fed deliver a third 0.75 percentage point increase?

The US Federal Reserve is widely expected to announce a third consecutive 0.75 percentage point interest rate increase at the conclusion of its September policy meeting, which wraps up on Wednesday.

The Fed has in recent months raised interest rates at a brisk pace in an effort to rein in price growth that continues to run near 40-year highs. Economists had expected consumer prices to fall in August from July due to the drop in petrol prices, but data released last Tuesday showed a small increase, suggesting the Fed has more work to do.

Following the inflation data, investors began betting on the possibility of a full percentage point increase, though the odds of that remain low, given the consistent messaging from the Fed in recent weeks about a 0.75 percentage point move.

The Fed on Wednesday will also release its “dot plot”, or summary of economic projections, which shows where the median Fed official believes interest rates, inflation, unemployment and gross domestic product will be over the course of the next few years. Meaningful changes in expectations are expected.

The last dot plot was released in June and suggested that inflation, measured as core personal consumption expenditures, would be 4.3 per cent by the end of 2022 and 2.7 per cent by the end of 2023. Core PCE for July was 4.6 per cent.

The June dots suggested interest rates would be at 3.4 per cent by the end of 2022 and 3.8 per cent by end-2023. At present, the futures market expects rates to be at 4.2 per cent by year-end, to peak in March 2023 at 4.5 per cent, and be cut to 4 per cent by the end of 2023. Kate Duguid

Will the BoJ stick to its ultra-loose policies?

The Bank of Japan is expected to maintain its ultra-loose monetary policy as market participants focus on whether authorities will directly intervene to stem the yen’s descent to a new 24-year low.

The policy meeting follows a tense week where BoJ officials phoned currency traders to inquire about market conditions in a so-called rate check, illustrating the government’s sense of alarm about the yen’s sharp fall against the US dollar. In the past, such checks have preceded an intervention by the Ministry of Finance to control the exchange rate.

Pressure on the yen is unlikely to affect BoJ monetary policy, however, with its governor Haruhiko Kuroda repeatedly arguing that it needs to maintain its stance until wages and inflation rise “in a stable and consistent manner”.

Most economists expect Kuroda to stay the course until his term expires in April next year. The only change expected is for the BoJ to confirm the end of a scheme it set up to offer cheap loans to banks financing small and medium-sized companies through the Covid-19 downturn.

“We expect the BoJ to keep monetary policy unchanged . . . having maintained its stance that monetary policy is not targeted at forex in the midst of sharp yen depreciation against the dollar,” said Citigroup Japan economist Kiichi Murashima.

The Fed, Bank of England and the Swiss National Bank are expected to raise rates this week, widening a divergence in global yields that has pushed down the Japanese currency. Kana Inagaki

Will the BoE raise rates for the seventh time in a row?

The BoE is expected to continue its policy tightening at the next meeting on Thursday as it deals with inflation rates about five times above its 2 per cent target.

The central bank has increased rates at the past six consecutive meetings and has accelerated its pace in August with a 0.5 percentage point rise. The median forecast of economists in a Reuters poll is for another half a percentage point rate increase, although some expect an extra-large 0.75 percentage point boost in the bank rate.

The UK annual pace of inflation dipped in August to 9.9 per cent, from 10.1 per cent in the previous month, but core inflation, which strips out food and energy, rose 0.1 percentage point to 6.3 per cent.

“The acceleration in core alongside the continued level of services inflation remains a notable cause for concern — one that we believe is likely to reaffirm the need for further ‘forceful’ action from the [Monetary Policy Committee],” said Benjamin Nabarro, economist at Citi.

Some economists also argue that the energy support package launched earlier in the month and tax cuts expected to be announced with the Budget will help limit the blow of surging gas prices to businesses and consumers, but they also could mean higher interest rates for longer.

Prime Minister Liz Truss’s energy market intervention — especially if combined with sizeable cuts to taxes — may keep spending growth too high, said Kallum Pickering, economist at the investment bank Berenberg. “While such fiscal interventions will ease the near-term pain for consumers as well as lower the peak rate of inflation, they tilt the risks to our medium-term inflation calls to the upside,” he added. Valentina Romei