UK Core Inflation and Inflation Rate YoY (FEB) was forecast to drop by 0.1% (5.7%) and 0.2% (9.9%) respectively, but came in much higher at 6.2% and 10.4%, respectively. MoM inflation also rose by 0.5% to 1.1%. This will pose a big question for the BoE as a double-digit inflation may require more than the forecasted 25 basis points hike.
The other data key out today is the USA Fed Interest Rate Decision – The Futures Markets are pricing in an 80% chance of a rate hike, currently forecasted at 25 basis points. The Central bank is also expected to release projections about the economy and the path of its rate hikes.
This could be very difficult due to recent uncertainty & investors will also want further assurances that regional banks will be protected and that the Federal Reserve will be able to contain an escalation of the banking crisis. The Fed’s Target Rate is expected to range between 4.75%-5%, although a pause in rate hikes is not totally out of the question. According to Michael Gapen, Chief US Economist at Bank of America-
The Fed seems to promoting a ‘double barrelled policy’, where on one hand the broader micro data shows further tightening is warranted, yet on the other hand the federal reserve is guaranteeing deposits and more favourable loans to banks (up to 12 months) to stem any fears about deposit flights and prevent further bank-runs.