Meanwhile, investors were also looking ahead to the Federal Reserve’s December 15-16 meeting, where the USA central bank is widely expected to raise interest rates for the first time since 2006.
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The European Central Bank ramped up its stimulus efforts earlier this month in an attempt to lift inflation in the 19-nation eurozone back toward its target of just under 2 per cent. A bevy of FOMC members, including Fed chair Janet Yellen have sent strong indications that the Fed will raise rates at the meeting, as headwinds restraining economic growth continue to fade and the labor market nears maximum employment. The Treasury nonetheless accepted only P2.1 billion for the one-year debt paper at a higher rate of 1.952 percent, up 7.4 basis points from the previous auction’s 1.878 percent.
The Fed sets monetary policy by adjusting the interest rate big banks pay each other for overnight loans: the Fed funds rate.
Indeed, many of its central bank peers around the world have hiked rates in this post-financial-crisis era, only to be forced to cut again within months because their local economies couldn’t handle it.
The nine rate-setters on the Monetary Policy Committee (MPC) voted 8-1 for no change, predicting that inflation would stay below 1% until the second half of next year. In the FOMC’s last projection, it estimated that Core PCE inflation will pick up noticeably next year and will rise further in 2017, but will not reach 2% until 2018. The MPC views nominal earnings growth as an important indicator of future inflation.
Inflation as measured by the Consumer Prices Index (CPI) stood at -0.1% in October and the rate-setters predicted it would be slightly positive in November.
The BOE is expected to leave its benchmark interest rate at 0.5% and maintain its quantitative-easing program at 375 billion pounds ($568 billion).
Since the Great Recession started eight years ago, the Federal Reserve has kept its benchmark interest rate near zero as a way to strengthen the economy.
Expectations for when the first United Kingdom rate rise will eventually come vary significantly, although most economists believe a hike will be made before 2017 – at odds with forecasts in the Bank’s own November inflation report.
“We think that there is the case for a baby step in the hawkish direction on the back of firmer domestic data, less bad external news and the likelihood that the Fed will hike imminently”, Scotiabank economist Alan Clarke said.
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“The short-lived market response might suggest that emerging markets could ride out the prospect of USA monetary tightening”, it said. “United Kingdom policy may soon start to look like it’s fallen behind the curve and expectations will grow of an upward move in United Kingdom rates next year”.
