As 2017 winds down, the final monetary policy decisions for the year from several institutions showed no major surprises. The US Federal Reserve raised rates by 25 basis points to 1.50% as expected. Apart from the adjustment, the pace of balance sheet reductions will grow to $20 billion per month in January with policymakers currently projecting another 3 rate hikes during 2018. In addition, growth forecasts were revised higher thanks to progress made on tax reform while unemployment was forecast to fall further. In the UK, the Bank of England refrained from adjusting policy, keeping rates on hold despite the upside pressure of inflation. Nevertheless, there were some hints additional rate hikes are on the horizon, especially after inflation topped the Central Bank’s mandate by more than 1.00%. The ECB also abstained from altering interest rates, instead announcing its intention to reduce monthly asset purchases as planned to €30 billion per month. However, inflation remains a sticky subject, with officials highlighting the Bank’s ability to change the size or duration of asset purchases as needed to support the economy. In response to US moves, China raised short-term borrowing rates despite the pressure the economy is facing as the annualized growth rates for fixed asset investment and industrial production decelerate.
US Policy Normalization Efforts Continue Apace
Weekly Report - 17/12/2017