SMM: the Federal Reserve will announce its latest interest rate decision at 02:00 Beijing time on Thursday (September). The Bank of England and the Bank of Japan will announce interest rate decisions and policy statements. The Bank of Indonesia, the Bank of Brazil and the SNB will also announce interest rate decisions.
Market participants expect the Fed to cut interest rates by 25 basis points as scheduled, while the Bank of England and the Bank of Japan are likely to leave their current interest rates unchanged. Amid the wave of easing, emerging market central banks are likely to follow the Fed in cutting interest rates.
(the probability of the Fed cutting interest rates by 25 basis points is only 56.5 per cent)
However, this time the Fed's interest rate resolution is different from the usual, with interbank liquidity drying up against the backdrop of collective corporate taxes in the middle of the month and heavy issuance by the US government. By the end of last year, the Fed should have known and taken seriously that repo rates would soar, but they did nothing, market participants said.
The cost of borrowing overnight cash through repurchase agreements soared more than fourfold to 10 per cent from Monday afternoon to Tuesday morning, according to Refinitiv. The Fed had to intervene urgently for the first time in a decade, and the Federal Reserve Bank of New York plans to release up to $75 billion through reverse repurchase auctions. In buyback auctions, the Fed accepts Treasuries and other securities as collateral and offers cash in exchange. The tool has not been used on such a large scale since 2008.
(overnight repo rates soared and the Fed was forced to inject liquidity)
Geoffrey Gunrac, chief executive of double-tier (DoubleLine Capital) and the "new debt king", said the surge in interest rates in the repo market would make it more likely that the Fed would resume its balance sheet expansion "soon". The Fed will likely launch "mild quantitative easing", allowing balance sheet expansion to be "in line with monetary growth, as they did before the credit crisis".
"the freeze can only be seen as negative and they are carefully taking the first step towards QE," Mr Gonrac said. "
On the other hand, the US economy is also showing more and more signs of recession, the United States from long-term and short-term Treasury bond yields upside down, manufacturing PMI fell below the 50% rise and fall line, which will force the Federal Reserve to take steps to boost the economy.
Scott Minard (Scott Minerd), chief investment officer at (Guggenheim Partners), a Guggenheim partnership with more than $240 billion in assets under management, warned on Tuesday that the company's recession forecasting model showed a 58 per cent chance of the US economy falling into recession in mid-2020 and a 77 per cent chance of starting a recession in the next two years.
The central banks of Britain and Japan have a high probability of "standing still."
The Bank of England and the Bank of Japan will also announce interest rate decisions this week, with the two central banks expected to leave existing interest rates unchanged this month but may adopt easing policies in the future.
Most economists do not expect the BoJ to cut interest rates this month, according to survey data. However, 28 of the 41 economists surveyed believe the BoJ will ease by the end of the year.
Masahiro Yugong, deputy governor of the Bank of Japan, has previously said publicly that the exit policy is also an option before future risks emerge. Some analysts point out that this suggests that the Bank of Japan is more likely to take preventive easing measures before the economy worsens.
For its part, the Bank of England is now focused on the Brexit process, and the UK has been implementing an asset purchase programme of £375 billion a month. An interest rate resolution released by the Bank of England in August showed that a gradual and limited increase in interest rates was appropriate.
No matter what form Brexit takes, the response to monetary policy will not be automatic and interest rates could move in both directions, the Bank of England said.
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