View on Central banks: Little action, H2 guidance in focus by David A. Meier, Economist, Julius Baer
Below the View on Central banks: Little action, H2 guidance in focus by David A. Meier, Economist, Julius Baer
Central banks: Little action, H2 guidance in focus
In a busy central-bank week, the US Fed, the Bank of Japan, and the Bank of England are all expected to hold. The markets’ focus will be on guidance for the second half of 2025, when the impact of US trade policy will be visible, enabling a continuation of the recent monetary policy trends.
In a central-bank-heavy week, four of the big five central banks will hold their June meetings. Apart from the SNB’s expected rate cut, the focus lies more on guidance for monetary policy in the second half of 2025.
The US Fed on Wednesday is likely to remain on hold, maintaining its data-driven stance. Recent labour market data has shown resilient job growth but also some cracks, such as a falling participation rate. Inflation continued to moderate, but with core inflation at 2.8% and inflationary risks from tariffs not ruled out, inflation pressure has not subsided sufficiently to embark on the second round of policy easing. We expect the hold to continue until data shows a negative impact from erratic policymaking, enabling a quick removal of the restrictive stance with two rate cuts of 50bps each in September and October. Should data surprise to the upside, delays or a more gradual policy easing are possible.
For the Bank of Japan (BoJ) on Tuesday the question is whether to continue its policy tightening, which was interrupted due to tariff uncertainty and the strengthening of the yen. Inflation remains elevated by Japanese standards, with headline inflation at 3.6%, but domestic demand continues to be fragile. The BoJ will likely continue to hold further before resuming rate hikes towards year end.
Finally, the Bank of England (BoE) is confronted with a trickier situation. Core inflation recently eased and at 3.8% is slowly closing in on the target range. However, energy price increases have pushed headline inflation back above target to 3.5%, and wage growth remains elevated. We expect a hold this month and a careful continuation of the quarterly pace of rate cuts, with one cut in Q3 and another one in Q4.
Following the escalation of the Israel-Iran conflict, our short-term forecast for crude oil at USD72.5/bbl suggests only a limited impact, which will hardly suffice to interrupt monetary policy easing for longer.
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