Global Central Banks Enter 'Super Week': Focus on US, Japan, UK Monetary Policy

European Central Bank Vice President Luis de Guindos recently pointed out that the economic uncertainty brought about by the Trump administration even exceeds the impact of the new coronavirus pandemic.

He specifically mentioned that Trump's tariff policy, plans to deregulate the financial system, and large-scale corporate tax reforms have all exacerbated market volatility in the short term and posed profound challenges to inflation expectations and interest rate trends. These words provide the economic backdrop for the upcoming “Super Week”.

Next week, central banks around the world will hold important monetary policy meetings one after another, with the focus on major global economies such as the United States, Japan and the United Kingdom. As the risks of global trade frictions escalate and the direction of US policy remains unclear, the market's attention will be focused on the policy decisions of the two major central banks of the United States and Japan.

Against this background, central banks of many countries including the United Kingdom, Switzerland and Sweden will also announce interest rate decisions one after another. Although the economic conditions of different countries vary, the market generally expects that major central banks will maintain a "cautious" and "wait-and-see" attitude under the influence of the uncertainty brought about by "Trump's policies."

Fed March meeting: High probability of keeping interest rates unchanged

Morgan Stanley predicts that if the upcoming economic data is in line with expectations, the Federal Reserve will likely keep the federal funds rate target range unchanged at 4.25%-4.50% at its March meeting, while emphasizing maintaining an accommodative policy bias and sending a signal of patience.

Morgan Stanley pointed out that under Powell's leadership, the Federal Reserve will continue to rely on data-driven policies rather than relying too much on forecasts. Therefore, unless there are major changes in economic data, the Fed will not easily adjust interest rates or give too much guidance on future policy paths.

In addition, Morgan Stanley expects the Fed's policy path to remain stable and predicts two rate cuts this year, bringing the interest rate to 3.9%, and two more rate cuts next year, bringing the interest rate to 3.4%. The forecast reflects the Fed's cautious optimism about the future economy and emphasizes the importance of data dependence.

If the Fed's "patience" is reflected in a wait-and-see strategy, then the Bank of Japan faces more "dilemma" choices.

The policy challenge of the Bank of Japan: the game between domestic recovery and external risks

With the Bank of Japan ending its years-long negative interest rate policy in January and raising rates for the first time in more than a decade, markets are looking forward to a recovery in the Japanese economy and expect the central bank to raise rates further. However, changes in the external environment, especially the Trump administration's trade policy, have made the Bank of Japan's policy outlook more unpredictable.

Bank of Japan Governor Kazuo Ueda recently told parliament that while he was optimistic about the recovery of domestic consumption, he was greatly concerned about uncertainties in the overseas economy. This statement deepened market doubts about whether the Bank of Japan will accelerate the pace of interest rate hikes.

More than two-thirds of economists polled by Reuters expect the Bank of Japan may raise interest rates to 0.75% in the third quarter, most likely in July. However, as uncertainty in the global economy grows, the market generally believes that the Bank of Japan will not be in a hurry to make more rate hikes in the short term.

Consensus among global central banks: Caution and wait-and-see attitude become the main theme

The cautious attitude of the Federal Reserve and the Bank of Japan is not an isolated phenomenon, but reflects the current general trend of central banks around the world. In the current global economic situation full of uncertainties, many central banks, including the Bank of England, the Swiss National Bank, the Swedish Central Bank, the South African Reserve Bank and the Central Bank of Russia, may also choose to remain on the sidelines and maintain the current interest rate level.

As the global economy faces many challenges, especially the uncertainty brought about by "Trump policies", "caution" and "wait-and-see" seem to have become the consensus of central banks around the world and have become the most critical policy labels of this "Central Bank Super Week".