Interest rate decisions: what to expect from US and UK policymakers

Patience in the face of uncertainty is expected from central bankers in the next 24 hours when the Federal Reserve and Bank of England deliver their latest interest rate decisions.

Their messaging is likely to continue the careful and data-dependent approach, even with Wall Street increasingly fearful over the global threat of stagflation due to recent trade tensions.

• Our Services: SIPP Account | Stocks & Shares ISA | See all Investment Accounts

The VIX index of implied volatility is above the multi-decade average of 20 while this week’s Bank of America survey of fund managers showed a record rotation from US stocks in favour of those in the eurozone and UK.

Despite the uncertainty, upside risks to inflation mean there’s little chance of a rate cut or so-called Powell put when Fed chair Jerome Powell briefs Wall Street tonight.

Rather than dovish comments, Capital Economics said the most investors can hope for is a more favourable set of dot plot forecasts showing lower interest rate projections for 2025.

The consultancy thinks even that scenario is unlikely, given that a modest downgrade to the GDP growth projections against a larger upgrade to inflation is not a recipe for a lower median interest rates outlook.

Much will depend on the extent to which Federal Reserve policymakers are prepared to look through the potential impact of tariffs on inflation.

• How investors can hedge against Trump’s trade wars
• What to expect from the 2025 Spring Statement

However, Capital Economics said that it seems likely that the median projection will still be for just two quarter point base cuts this year, rather than the three priced into markets last week.

Deutsche Bank added today: “Plenty has happened since the last meeting so the press conference could see a whole host of challenging questions for Powell.

“We suspect they will mostly be answered with a straight, non-committal bat but will make for interesting viewing.”

Unlike the Federal Reserve, tomorrow’s policy decision by the Bank of England will not feature a full review of economic projections.

Most economists see the monetary policy committee voting 7-2 in favour of keeping rates at 4.5%, given that UK inflation has been stronger than expected since February’s rate cut and there are also signs that wage pressures remain elevated.

• Surge of interest in these UK tech stocks
• eyeQ: a new bullish signal for this American tech giant

Bank of America adds that recent comments have suggested that the committee balance has shifted less dovish. This comes after two members who previously voted for back-to-back cuts said that they no longer see inflation risks as only tilted to the downside.

ING’s base case is still for three cuts this year, with the next move in keeping with the approach of one per quarter at the same time as the Bank’s monetary policy report in May.

It said: “We don’t rule out a faster pace though that would require more obvious and abrupt signs of weakening in the jobs market.

“We doubt the government’s Spring Statement on 26 March, where some spending cuts are widely expected, will dramatically change the story for the Bank.”