In the last real week of the year on financial markets, investors will be particularly busy. Central bank meetings are at the heart of the agenda. After the Fed last week, it is the ECB (Thursday), the Bank of England (Thursday) and the Bank of Japan (Friday) that will deliver their final decisions of the year.
ECB well positioned
Since the last rate cut in June, the ECB says monetary policy is "well positioned." On Thursday, Christine Lagarde is unlikely to deviate from that line. A status quo should be announced. That stance is supported by the latest data: resilient growth and inflation a bit above expectations.
The hold should also be supported by the update to economic projections. "At the time of the last projections, we raised our forecasts," Christine Lagarde said at a Financial Times event last week. "I suspect we could do so again in December."
It is interesting to note that the conversation has shifted in recent weeks. We have moved from "Should the ECB cut rates further?" to "Will the next move be a hike?"
Last week, Isabel Schnabel, a hawkish member of the ECB Executive Board, told Bloomberg she shared "market expectations that the next move will be a hike."
Bank of England: Bailey as an arbiter
On hold since August, the Bank of England is expected to cut rates by 25bp this Thursday, from 4% to 3.75%. In a deeply divided committee, Andrew Bailey is set to tip the balance toward a cut, in a 5-to-4 vote.
The Bank of England is in a somewhat delicate position, with the highest inflation in the G7. According to a Reuters survey, November inflation, published tomorrow, should come in at 3.5%. Inflation is slowing, to be sure, but it remains well above the 2% target.
The latest jobs report, released this morning, shows wages continue to decelerate in a cooling labor market. That is what allows the BoE to cut rates again. Investors are pricing in an additional rate cut in 2026.
Bank of Japan going against the grain
Unlike the other major central banks, the Bank of Japan is in a rate-hiking cycle. It is a phase of monetary normalization after years of ultra-accommodative policy.
The BoJ has already raised rates by 100bp, from -0.5% to 0.5% since January 2025. On Friday, another quarter-point hike is expected. That move seemed far from assured a few weeks ago, with the arrival of the new Prime Minister, Sanae Takaichi, who favors an accommodative monetary policy.
However, as inflation is anchored above 2%, supported by rising wages, this argues for higher rates. The Bank of Japan estimates the neutral rate at between 1% and 2.5%.
