Central Banks Gear Up for 'Big Week' with Rate Decisions Looming

Next week is shaping up to be a crucial period for global financial markets as several central banks prepare to make key decisions. The Federal Reserve's FOMC meeting, which begins on September 15, will likely set the tone for the remainder of the year. Market expectations are marginally tilted towards a hike, but the rate decision itself is not the only thing investors are focusing on.

The Fed's inflation assessment is seen as key to determining the future course of interest rates. With employment and inflation data released since the Jackson Hole symposium, officials will be closely watching these metrics to inform their decision. Another point of interest is how Chair Jerome Powell will respond to pressure from President Donald Trump for rate cuts.

The Bank of Japan's policy decision on September 18 has been largely priced in by markets, with a 25bp hike seen as nearly certain. However, some analysts suggest the timing of additional hikes could be pulled forward due to U.S. Treasury Secretary Scott Bessent's pressure to stem yen weakness.

The European Central Bank is also set to announce its decision this Thursday, with markets pricing in a 25bp hike as nearly certain. Jim Reid of Deutsche Bank noted that rising energy prices are having a significant impact on the ECB's policy reaction function, making the path ahead far more complicated.