5 Developments To Watch This Week

The Federal Reserve, the Bank of England and the European Central Bank are gearing up for their final meeting of the year next week, against the backdrop of rising inflation and Omicron woes. US stocks are back to record highs, but there is still potential for renewed activity after last week's sell-off. Meanwhile, economic data, including producer prices and retail sales reports, will be in focus as the Fed approaches rate hikes. 5 developments to watch this week;

Fed Will Discuss Rapid Contraction

The Fed will hold its final meeting of the year on Tuesday and Wednesday, and Chairman Jerome Powell and his colleagues are expected to discuss accelerating the slowdown of the central bank's $120 billion monthly asset-buying program during the pandemic. In November, the Fed began shrinking its stimulus program at a pace that would allow it to complete the slowdown by mid-2022. Analysts think that if the Fed accelerates the contraction, the process could end by March and pave the way for the two rate hikes expected in 2022.

Decisions of BoE and ECB

The BoE and ECB will announce their final monetary policy decisions of the year, 45 minutes apart, on Thursday, and both are potentially bustling in the market. Uncertainty over the Omicron Covid-19 variant means the BoE is expected to delay march rates until February. Employment and inflation data will give policymakers in the UK a final idea of ​​the economy's strength ahead of Thursday's meeting, pushing the inflation forecast to its highest level in a decade.

US Economic Data

The US will release data on producer price inflation, which will be the highlight of the economic calendar, on Tuesday. The high rate of inflation is primarily driven by supply chain bottlenecks and could continue into 2022 as these issues show little sign of easing and companies raise wages as they compete for scarce workers. Friday's Department of Labor data showed consumer prices rose 6.8% year-on-year in November, the highest in more than 39 years.

Market Volatility

US stocks bounced back to record highs after a sell-off triggered by concerns over the Omicron variant and the possibility of faster contraction. But markets may be awash with fresh indications that the Fed is starting to worry more about inflation. Mona Mahajan, senior investment strategist at Edward Jones, told Reuters the Fed meeting could bring more clarity to investors after increasing volatility in recent weeks.

Bank of Japan

The BOJ will wrap up its two-day policy meeting on Friday and appears determined to maintain its ultra-loose monetary policy, but is debating whether to extend its emergency pandemic relief program beyond its current scheduled March 2022 end date. Central banks in Switzerland, Russia and Hungary will also meet during the week.