Highlights

  • The Fed kept policy rates unchanged, but the BoE reduced rates in a sign of some divergences in monetary policies.
  • We think inflation is progressing towards the Fed’s goal, leaving the door open for easing at its future meetings this year.
  • Bonds may benefit from central bank rate cuts and falling inflation.

In this edition

The Fed left interest rates unchanged in its latest policy meeting in July but acknowledged that price pressures are subsiding. This could encourage the Fed to reduce interest rates later this year. Across the Atlantic, the Bank of England (BoE) implemented its first rate cut since early 2020 on abating inflation in the UK. In contrast, the Bank of Japan (BoJ) raised policy rates for the second time this year to control upward pressures on inflation.

We think these temporary divergences in central bank actions are primarily a result of the different economic environments prevailing in these countries. Hence, incoming data on inflation and growth are important and would drive central banks’ policies.

Fed held rates steady but Bank of England cut

Key dates

5 Aug

Indonesia GDP, EZ PMI,
US PMI

  

7 Aug

Trade balance:
Germany and China

  

8 Aug

Reserve Bank of India,
Bank of Mexico policies

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