Fed Set to Lead G7 Trio in Hawkish Rate Pause: Eco Week Ahead

(Bloomberg) -- The Federal Reserve and its peers in the euro zone and Japan will probably keep interest rates steady in the coming week, opting to bide their time before potential further hikes.

Three days of decisions starting on Wednesday in Washington are likely to affirm a hawkish stance balanced by a measured pace as policymakers confront inflation risks ranging from surging energy prices to the artificial intelligence boom.

The Fed raised rates in September for the first time since 2023 and signaled another increase was likely this year. While US inflation data has come in hot since then, officials seem in no rush to deliver another hike. Instead, economists and investors expect a move at the final meeting of 2026, in December.

Chairman Kevin Warsh, who's eschewed guidance on future moves, will face a tricky test at his post-meeting press conference. He probably won't offer much insight about December, but may also not want to sway market bets away from the current expectation for a hike.

Fed watchers may need to wait until after the meeting to hear what other US central bankers say about the prospects for policy.

"We still see the Fed on hold through year-end. Higher borrowing costs are working their way through the economy, and there's a risk that an AI-related market correction around the midterm elections could tighten financial conditions abruptly."

Anna Wong. For full analysis, click here

The European Central Bank on Thursday could offer its own signals on a hike in December, in a decision overshadowed by France's bond-market troubles. The following day, the Bank of Japan will probably keep its rate steady while holding the door open to a move at the end of the year.

In contrast to the no-change expectations from those big-three Group of Seven decisions, other central banks may well deliver action.

Most forecasters anticipate a hike from New Zealand on Wednesday, while several economists see the first such move in three years materializing at the Bank of Canada on the same day.

Elsewhere, US and euro-zone growth data, the UK budget, and rate decisions from Colombia to Thailand will be among the highlights.