Central Banks Take Center Stage This Week: Will It Be Hawkish or Not?

This week will be crucial for financial markets as three major central banks - the Federal Reserve (Fed), Bank of England (BoE), and Bank of Japan (BOJ) - announce their policy decisions. The Fed's rate hike decision on Wednesday is highly anticipated, with a 25-basis-point increase already priced in by market participants.

However, attention has shifted from the immediate decision to whether the new dot plot points to additional tightening later this year. The U.S. CPI report in August showed inflationary pressures persisting, which may indicate a more hawkish stance from the Fed.

The Bank of England's balance-sheet plans and a possible BOJ hike could also impact global markets through bond yields, currencies, and carry trades. On Thursday, the BoE is expected to keep its Bank Rate at 3.75%, but the vote split, inflation assessment, and planned pace of gilt reductions may matter more than the unchanged policy rate.

The BOJ's decision on Thursday night or early Friday will also be closely watched, with most economists expecting a 25-basis-point hike to 1.25%. Markets will examine its assessment of wages and inflation, as well as any guidance on further tightening.