Investors are shifting their focus Tuesday from the stock market to Stockholm as they await a fairly rare public speaking appearance by Federal Reserve Chairman Jerome Powell.
Powell is set to participate in a panel discussion on central bank independence at an event hosted by Sweden’s central bank, the Sveriges Riksbank. It will also be attended by Bank of England Governor Andrew Bailey and European Central Bank member Isabel Schnabel, among others.
Powell will likely feel comparatively good on this global stage as US inflation rates (as measured by the Labor Department’s Consumer Price Index) have been steadily falling for the past five months. That has enabled the Fed to start easing back on the size of its historically high rate hikes meant to cool the economy and fight rising prices.
Inflation in the Eurozone, meanwhile, remains at an eye-popping 9.2% — though it eased between November and December. ECB president Christine Lagarde said last month she expects interest rate hikes to rise “significantly further, because inflation remains far too high and is projected to stay above our target for too long.”
“If you compare with the Fed, we have more ground to cover. We have longer to go,” she added.
The Bank of England, meanwhile, has also warned that inflation, still at its highest level since the 1980s, isn’t going anywhere. The BoE’s chief economist Huw Pill said this week that inflation could persist for longer than expected despite recent falls in wholesale energy prices and an economy on the brink of recession.
These three central banks are fighting in different conditions, but they share a similar battle strategy: Keep tightening.
And while the panel discussion will likely steer clear of inflation predictions, a question-and-answer session with audience members will follow — along with the possibility of queries about future rate hikes.
The central bankers will also defend the importance of independence and credibility for their institutions, which has come under fire as policymakers are accused of having let surging inflation go unchecked for too long.
December meeting minutes from the Fed, released last week, noted that the policymaking committee would “continue to make decisions meeting by meeting,” leaving options open for the size of rate hikes at the next monetary policy decision on February 1. No policymakers have forecast that it would be appropriate to reduce the bank’s benchmark borrowing rate this year. And while officials welcomed the recent softening in inflation, they stressed that “substantially more evidence” was required for a Fed “pivot.”
Last week’s jobs report further muddied the picture, showing that employment remained strong while wage growth eased.
Thursday’s Consumer Price Index for December — which will be the new year’s first check on inflation — will also provide helpful clues to investors about whether US price hikes are sufficiently cooling.
Positive data could bolster consensus estimates that call for a quarter-percentage point interest rate hike in February, a shift lower from December’s half-point hike and the four prior three-quarter-point hikes.