Super Central Bank Week is Coming! Japan Leading the Way to Raise Interest Rates, Developed Countries Central Banks Cutting Interest Rate Cycle Coming to an End, Will the Federal Reserve Lower Interest Rates Alone Next Year?

The momentum of loose global monetary policy is entering its final stages in 2025. During the last intensive central bank decision-making week of the year, there is a growing trend of developed economies "hitting the brakes," with significant differentiation in the policy paths of major central banks globally, adding new uncertainty to the markets for the next year. Next Thursday, December 18, the Bank of England and the European Central Bank will announce their interest rate decisions. Following that, the Bank of Japan will announce its interest rate decision next Friday. Next week, the central banks of Thailand, Indonesia, Sweden, Norway, Mexico, Russia, and Hungary will also announce their latest interest rate decisions. The most notable signal comes from Japan. It is widely expected that the Bank of Japan will raise interest rates for the first time in over a year on this Friday, contrasting sharply with the global trend of rate cuts over the past year. Meanwhile, the European central banks appear more cautious. According to a survey by Bloomberg, economists unanimously predict that the Bank of England will cut interest rates this week, but this is likely to be one of the last moves in its current easing cycle. The European Central Bank is expected to keep rates unchanged and may raise growth forecasts, with the market closely watching for any hints of a shift towards tightening. Against the backdrop of these dynamics, the Federal Reserve has provided a "hazy outlook" for its future policy path after its recent rate cut. With other developed economies pausing or ending their easing cycles, and Japan even preparing to raise rates, if the Federal Reserve continues to cut rates in the future, it may find itself in a "solo act," reshaping the logic of global capital flows and asset pricing. Bank of Japan on the brink of raising rates In this week's global central bank agenda, the decisions of the Bank of Japan (BOJ) are undoubtedly the focus of the market. According to Bloomberg, it is widely expected that Governor Kazuo Ueda and the decision-making committee will raise the benchmark interest rate to 0.75% at their meeting on Friday. This would be the first rate hike since January of this year. A Bloomberg survey shows that all Japanese central bank observers interviewed expect a rate hike this month. Supporting this decision will be the Tankan survey released on Monday by the Bank of Japan. The survey is expected to show continued improvement in the business confidence of large manufacturers in the three months ending in December, which will support the central bank's tightening action. Japanese authorities have already sent signals through various channels to prepare investors for a rate hike. In addition, Japan's CPI data for November will be released next Friday, with the market expecting core CPI to remain high at 3.0% year-on-year, paving the way for a rate hike. European Central Bank stays put, UK may see "final rate cut" In contrast to Japan's tightening expectations, the Bank of England (BOE) is expected to take easing action, but this may only be the last hurrah. According to a survey by Bloomberg of economists, all respondents predict that the Bank of England will cut rates on Thursday. The key question for the market is whether Governor Andrew Bailey, who voted against a rate cut at the last meeting, will support a rate cut this time. Regardless of the outcome, analysts widely believe that this may be one of the last actions in the Bank of England's current easing cycle, signaling a shift in its policy focus. Meanwhile, the European Central Bank (ECB) is expected to continue to stay put. According to Bloomberg Economics' proprietary sentiment indicator ECBspeak index, hawkish officials are currently in the lead, almost ensuring that the December meeting will keep rates unchanged. The market will focus on ECB President Christine Lagarde's speech and the latest quarterly forecasts from the ECB, looking for clues on when a shift towards tightening may occur. In other parts of Europe, the central banks of Sweden, Norway, and the Czech Republic are also expected to keep rates steady at this week's meeting. Federal Reserve to "cut rates alone"? The Federal Reserve recently cut rates by 25 basis points as expected, with markets generally expecting the Fed to maintain loose policy next year. Morgan Stanley and Citigroup predict another rate cut in January next year, judging that the easing cycle is not over yet. Goldman Sachs and Barclays analysts suggest that hawkish language in the policy statement aims to "balance" this rate cut to avoid signaling excessive easing. Citigroup, Morgan Stanley, and JPMorgan all point to January next year for the first rate cut, with Citigroup expecting another rate cut in March, Morgan Stanley predicting a second rate cut in April, and JPMorgan believing that the policy will enter an observation period afterwards. Policy differentiation: Developed economies "slowing down" while emerging markets "accelerate" The picture of global monetary policy is becoming increasingly complex and differentiated. As the rate-cutting momentum in developed economies gradually fades, central banks in other regions continue on the easing path. According to Bloomberg, the Bank of Thailand (BOT) is expected to cut rates by 25 basis points on Wednesday in the Asian region, while there is disagreement among economists on whether the Bank of Indonesia (BI) will take similar action. In Latin America, the trend of policy differentiation is also evident. The central banks of Chile and Mexico are expected to cut rates this week to address economic pressures. In contrast, the Colombian central bank may choose to keep rates unchanged at 9.25% after better-than-expected inflation reports. Additionally, the Russian central bank may cut rates again on Friday, but considering factors such as inflation expectations, the rate cut may be reduced from the previous large adjustments to 50 basis points. This "two-speed" monetary policy pattern suggests that the global economy and financial markets will face a more complex environment in 2026, and investors need to prepare for the increasing policy differences between different economies. Will the US Dollar's decline continue in 2026? It is widely expected that the Federal Reserve will maintain loose policy next year, while central banks in Europe, Canada, Japan, Australia, New Zealand, and other countries tend to maintain a tightening bias. Analysts such as Goldman Sachs believe that this policy differentiation is expected to have a key impact on the exchange rate market around 2026, with pressure on the depreciation of the US dollar becoming a market focus. According to Wall Street News, it is widely believed on Wall Street that the Federal Reserve will cut rates next year. Deutsche Bank and Goldman Sachs expect the US dollar to continue to weaken in 2026. While the Federal Reserve continues to cut rates, central banks in Europe and Japan are inclined to maintain or even raise rates, which will reduce the attractiveness of US dollar assets. If the US rate cut is greater than expected and non-US regions see economic recovery, the US dollar may face sustained depreciation pressure. This article is reproduced from the "Wall Street News" APP, author: Long Yue, GMTEight editor: Song Zhiying.