All about central banks this week

Market keeping close eye on FOMC meeting

The Fed can’t be happy with how quickly the steepening of the curve is happening, but they will not deviate from the stance that if inflation does occur, policymakers will be able to deal with it.  Many traders will primarily focus on the dot plots and everyone is likely to upgrade their growth projections, but mostly remain stubbornly cautious with calls for a first Federal Funds rate hike.

Fed Chair Powell will rely on the short-term risks to the outlook to defend his ultra-easy monetary stance.  Wall Street should expect the Fed to signal interest rates will remain near zero through 2023.

Powell will likely replay his best hits when discussing inflation, noting that price increases later in the year won’t be large or persistent.  The summertime is when inflation could rear its ugly head, so Powell should be able to push back any concerns until then.

US growth exceptionalism due to COVID vaccine rollout success will make it harder for Powell to deflect calls for future inflation and tightening.  Powell will likely focus on how COVID cases and hospitalizations might be rising in some states and that could pose a key risk to the reopening of the economy.

The Fed could deliver qualitative guidance on how it will adjust its purchases, but that bazooka might best be used if the 10-year Treasury yield is north of 1.75%.  Operation Twist, Weighted Average Maturity (WAM) targeting, or yield curve control (YCC) are all tools that the Fed could resort to later this year.


BOE is widely expected to keep interest rates steady and make no changes to their current pace of stimulus.  The steady rise in Gilt yields is a reflection of an improving economy and with the next policy meeting occurring on May 6th, Governor Bailey will make sure not to commit to anything.  Any short-term risks to the outlook will clearly be visible by the May meeting, and if the economy continues to improve, policymakers could commit to slowing their purchases.


The Bank of Japan (BOJ) is widely expected to keep interest rates unchanged and reiterate that it is too early to consider the exit from its ultra-easy policy.  This policy meeting could clear up many questions on thresholds: how far bond yields can deviate from their target and some outcomes from the negative rate study.  The BOJ wants to avoid a taper tantrum so any tweaks to their yield curve control program should be minimal.

Other CBs

Romania wanted to cut interest rates, but high inflation prevented them.  The benchmark rate remained at the record low of 1.25%.  Inflation is at a 1-year high, but COVID cases are trending higher again.  The Romanian central bank will likely refrain from hiking anytime soon until the economy is on sound footing.

Sweden Gov. Ingves speaks in Parliament and will have to address whether low inflation warrants a return to negative territory for interest rates.  Sweden’s economic recovery is not terrible, so the Riksbank should be able to hold off on rate cuts.

Russia is widely expected to keep interest rates steady and cue up a path for interest rate hikes later this year.

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Ed Moya

Ed Moya

Contributing Author at OANDA
With more than 20 years’ trading experience, Ed Moya was a Senior Market Analyst with OANDA for the Americas from November 2018 to November 2023. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Prior to OANDA he worked with, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business, cheddar news, and CoinDesk TV. His views are trusted by the world’s most respected global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Seeking Alpha, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.