The Federal Reserve’s (Fed) rate cut talk is getting messy and, frankly, hard to follow. After the Fed signaled a possible end to its tightening campaign and European policymakers refused to follow suit, some Fed members, including John Williams and Raphael Bostic, pushed back on Fed cut expectations.
However, investors may give the Fed doves the benefit of the doubt until Friday’s PCE data. PCE, the Fed’s favorite measure of inflation, is expected to show a further decline in both headline and core inflation.
Elsewhere, the Bank of Japan (BoJ) will announce its final policy decision of the year on Tuesday. BoJ Governor Ueda’s comments two weeks ago that the BoJ’s policy would be difficult to maintain from the end of the year had raised expectations that the BoJ would finally say goodbye to negative interest rates. There is no more than a small chance that the BoJ will exit negative rates this week, but investors are eager to hear more details on how and when the BoJ will exit negative rates.
Concrete details regarding the BoJ’s policy plans and/or changes in the BoJ’s inflation outlook could cause quick moves in the yen markets, which have become very volatile since Ueda hinted that something is cooking in his kitchen.
