3 Big Rate Decisions Coming This Week

3 Big Rate Decisions Coming This Week

The Fed, ECB may be close to done, while the BoJ hasn’t even started.

Senior ETF Analyst
Reviewed by: Lisa Barr
Edited by: Lisa Barr

Another rate hike is in the cards this week—but not just one. The Federal Reserve, the European Central Bank and the Bank of Japan are all scheduled to announce their latest monetary policy changes. 

Here’s what we’re likely to see.  

Fed Hits Play  

After 10 consecutive hikes over 15 months, the Fed finally hit the brakes in June. But the U.S. central bank is likely to resume its rate increases this Wednesday, according to market-based indicators. 

Probabilities based on fed funds futures suggest there is a 99% chance that the Fed hikes rates by 25 basis points to a range of 5.25% to 5.5% this week. 

U.S. stocks have largely priced in that likely rate hike. The SPDR S&P 500 ETF Trust (SPY) gained more than 4% between the Fed’s June pause and Monday, even as it became increasingly clear that the central bank would resume its hikes in July. 

But the market may not be ready for even more rate hikes beyond July (should they materialize). Currently, funds futures are only pricing in a 17% probability of another rate hike in September. 

The ECB’s Last Rate Hike? 

The Fed is probably close to the end of its rate hiking cycle, and so too is the European Central Bank, according to the market. 

This Thursday, the ECB is all but certain to hike its benchmark rate 25 basis points to 3.75%, but that could be the last increase. 

Overnight index swaps are pricing in a peak rate of 3.86% this year, suggesting the ECB may not hike rates again after this week. 

Eurozone stocks, which have surged more than 20% year to date, as measured by the iShares MSCI Eurozone ETF (EZU), would likely cheer such an outcome (while they could come under pressure should the ECB raise rates notably above 4%). 

Bucking The Trend, Again  

The third big rate decision of the week comes from the Bank of Japan on Friday.  

In contrast to other central banks that have been ratcheting rates ever higher, the BoJ has bucked the trend with its continuation of easy money policies. 

We could see more of the same this week. According to a survey of economists by Bloomberg, 82% of them expect BoJ to keep its monetary policy as is on Friday, while 18% expect the central bank will adjust or scrap its yield curve control.  

Currently, the Bank of Japan allows the 10-year Japanese government bond yield to trade at zero plus or minus 50 basis points.  

Presumably, if BoJ ended its yield curve control, the rate—which is currently at 0.45%—would shoot higher, hurting Japanese stocks. 

The iShares MSCI Japan ETF (EWJ) is up 16% so far this year, but the WisdomTree Japan Hedged Equity ETF (DXJ)—which hedges currency moves—is up 32%.  

The ETF’s currency hedges have protected it from a 7% drop in the value of the Japanese yen versus the U.S. dollar. 

Sumit Roy is the senior ETF analyst for etf.com, where he has worked for 13 years. He creates a variety of content for the platform, including news articles, analysis pieces, videos and podcasts.

Before joining etf.com, Sumit was the managing editor and commodities analyst for Hard Assets Investor. In those roles, he was responsible for most of the operations of HAI, a website dedicated to education about commodities investing.

Though he still closely follows the commodities beat, Sumit covers a much broader assortment of topics for etf.com, with a particular focus on stock and bond exchange-traded funds.

He is the host of etf.com’s Talk ETFs, a popular video series that features weekly interviews with thought leaders in the ETF industry. Sumit is also co-host of Exchange Traded Fridays, etf.com’s weekly podcast series.

He lives in the San Francisco Bay Area, where he enjoys climbing the city’s steep hills, playing chess and snowboarding in Lake Tahoe.