FirstFT: Central banks set to push back against rate-cut expectations this week

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Leading central banks are preparing to push back at investor predictions of how quickly interest rates will fall, as officials meet for the final time this year amid strong employment numbers.

Investors have been betting that policymakers in the US, the eurozone and the UK will start loosening monetary policy early in the new year, fuelling an easing in financial conditions for businesses, as they focus on falling headline inflation readings.

But those expectations will be tested in coming days at meetings of the US Federal Reserve, the European Central Bank and the Bank of England, all three of which have signalled they want clearer evidence of weakening labour markets before cutting rates.

Fed chair Jay Powell has sought to temper expectations, stressing it was “premature” to say interest rates had peaked or to begin sketching out the timing and parameters under which policymakers would consider cuts, an argument reinforced by strong US hiring and wage data released on Friday.

The Fed announces its decision on Wednesday, followed by the ECB and BoE on Thursday. Here’s more on what to expect from this week’s interest rate announcements.

Premium subscribers can sign up for our Central Banks newsletter by Chris Giles for weekly insights into global rate-setters’ battle against inflation. Upgrade your subscription here.

Here’s what I’m keeping tabs on today:

• UK Covid inquiry: Prime Minister Rishi Sunak appears before the official inquiry into the government response to the pandemic, during which he served as chancellor under Boris Johnson.

• France: President Emmanuel Macron’s long-promised immigration reforms faces a motion to dismiss by opponents who seek to reject the draft law.

• Poland: Prime Minister Mateusz Morawiecki is expected to fail to obtain a vote of confidence for his government’s programme, after which parliament may ask Civic Coalition leader Donald Tusk to form a government.

• Argentina: An emergency decree reducing the number of government ministries from 18 to nine takes effect after it was signed by newly inaugurated President Javier Milei yesterday.

Five more top stories

1. Small businesses have asked the UK’s top financial regulator to intervene over “harsh” banking practices. The Federation of Small Businesses said it had filed a “super-complaint” to the Financial Conduct Authority, focused on “banks that excessively demand personal guarantees for business loans”, saying entrepreneurs were being forced to put their homes at risk unnecessarily.

2. The European mortgage market is set for its lowest growth in a decade, expanding by only 1.5 per cent this year compared with 4.9 per cent last year, according to EY’s forecasts. The consultancy said rising interest rates and persistently high inflation had suppressed demand for mortgages.

3. Women are under-represented in positions from which FTSE 100 chief executives are typically recruited, new research has found. This means a lack of women at top corporate jobs is set to continue even at companies that employ a large proportion of women overall, according to the 25×25 initiative backed by companies such as BP, Unilever and Morgan Stanley International. Read more about the findings.

4. Exclusive: Nearly half of US voters think the government is spending too much on aid for Ukraine, with opposition particularly pronounced among Republicans, underscoring the fragility of domestic support just as Volodymyr Zelenskyy prepares to visit Washington to lobby for more funding. Here are more details from the FT-Michigan Ross poll.

• War in Ukraine: Former and current advisers have criticised Zelenskyy’s messaging, saying the president’s “rose-tinted” speeches are undermining trust and confidence.

5. US health insurer Cigna has abandoned plans for a blockbuster merger with Humana, a transaction that would have created a $140bn insurance giant and marked the largest deal of the year. Mounting pressure to cut costs has driven consolidation in the healthcare industry in recent years. Here’s why the merger talks ended.

The Big Read

After a year of dire poll ratings and Rishi Sunak’s popularity nosediving, the UK Conservative party is ending 2023 in a state of civil war over migration policy. The looming crunch point for the prime minister comes tomorrow, when the House of Commons votes on his floundering plan to send asylum seekers to Rwanda. With an election expected within a year, Sunak is seeking to avert a mutiny from rightwing Tory MPs threatening to oust him.

We’re also reading . . . 

• Qatargate: The investigation into the EU corruption scandal is losing steam, bogged down in legal counter-probes that have delayed any potential trial.

• Israel-Hamas war: Conditions in Rafah are dire as hundreds of thousands of Palestinians fleeing Israel’s Gaza offensive are being pushed to the town bordering Egypt.

• US campus antisemitism: Wealthy alumni of elite US universities have campaigned about rising hostility towards Jews, with the controversy already forcing one university president from office.

• Lessons from a journalist: Jonathan Guthrie, the head of FT’s Lex, is retiring after 37 years in financial journalism. Here are six things he has learnt.

Chart of the day

Despite the major shift in British opinion over the wisdom of Brexit, the UK is unlikely to rejoin Europe for many decades, if ever, writes Martin Wolf. Here’s why.

Take a break from the news

In this week’s Lunch with the FT, Sean Turnell, the Australian economist jailed by the Myanmar junta, discusses working with Aung San Suu Kyi, the souring of a democratic dream and the 650 days he spent in prison.

Additional contributions from Benjamin Wilhelm