Week ahead: Fed faces rate hike dilemma

After the travails of Silicon Valley Bank and Credit Suisse, investors hoping things calm down a bit this week will be disappointed. The Federal Reserve faces a tough decision on whether to raise rates or pause in the wake of the banking troubles. Meanwhile the Bank of England and Swiss National Bank are also in action.

Here are the week’s key events:

Monday

Market watchers will be awaiting the open on Monday with some trepidation in the wake of last week’s market turmoil. Has the European banking selloff been contained; is Credit Suisse safe? These questions continue to dog markets as we look to some pretty low profile data – UK Rightmove house price data, German producer price inflation and the Buba monthly report.

Tuesday

Monetary policy meeting minutes from the Reserve Bank of Australia will drive the action in AUD ahead of the German ZEW economic sentiment report at the start of the European session. Canadian inflation data will be important for the loonie as traders get a feel for whether the Bank of Canada was right to pause interest rate hikes at its last meeting. Speaking after the BoC left its benchmark rate at 4.50%, Senior Deputy Governor Carolyn Rogers said: “It’s a conditional pause, though. If economic developments unfold as we projected and inflation comes down as quickly as we forecast in the January Monetary Policy Report (MPR), then we shouldn’t need to raise rates further.”

Earnings: Nike (NKE)

Wednesday

Fed Day: The Federal Reserve faces a dilemma – raise rates by 50bps, 25bps, pause, or even cut. Financial stability has come under pressure with bank failures in the US, but inflation remains too high, leaving the FOMC with a big call to make. Markets favour a smaller 25bps hike to signal calm, but Jay Powell will face a tough line of questioning whatever the Fed opts to do. We saw last year how the Bank of England was able to deliver emergency stimulus to prevent financial instability without disrupting its longer-term monetary policy goals.

Thursday

The Swiss National Bank (SNB) interest rate decision will be overshadowed by Credit Suisse news, so it’s the Bank of England that could provide some interest. The UK Chancellor last week said inflation would be back down to 2.9% by the end of the year, which coupled with the recent turmoil in financial markets, might be enough to persuade the Monetary Policy Committee to pause rate hikes.

Earnings: General Mills (GIS)

Friday

The week rounds out with a batch of economic data. GfK consumer confidence in the UK is first up before retail sales figures are released. In Europe the latest flash manufacturing and services PMIs are expected to show some improvement. US and UK PMIs are also due, as is the latest round of US retail sales and durable goods orders.