Countdown quickens to US rate hike

Several of the world’s top central banks will meet in the coming week, but only one, the US Federal Reserve, is set to start a final countdown on the second most anticipated event of the year after the presidential election.

Fed chair Janet Yellen and the rest of the Fed’s policy-setters appear to have left themselves the December meeting to deliver a rate rise in 2016, with hardly anyone expecting a move this Wednesday only days before the November 8 election.

If the Fed does go ahead the following month, as most in financial markets and analysts expect, it will have been a full year since the last increase and three short of the number of moves the Fed had anticipated back then.

The conditions justify a long-awaited rate rise are lining up. Growth bounced back to an annualised 2.9% in the third quarter.

Crucially, nascent signs of inflation pressure — the missing ingredient up until now — are rattling sovereign bond markets around the globe, suggesting that few people are clinging to hope that the Fed will delay once more.

The Federal Open Market Committee, which already had three members voting for a rate rise at the September meeting, is expected to make clear in its statement this week that it has taken note of these improvements, however subtly.

The October employment report at the end of the week is also forecast to show solid if not spectacular hiring.

The Bank of England’s Monetary Policy Committee meets this week to consider an inflation challenge from a different angle.

The coming surge in imported inflation as a result of the pound’s collapse since the UK voted on June 23 to leave the EU has considerably narrowed the central bank’s wiggle room for another rate cut below 0.25%.

The majority of economists polled by Reuters have pushed a UK rate cut off the table for this year, with some traders in financial markets already speculating on the next move up.

The Bank of Japan is due to meet today, but few expect it to make any changes to policy after recently implementing an overhaul of its tools. More easing is a way off, and is more likely to be a response to an external shock.