Swiss, British Central Banks Announce Policy Decisions

Rates rise despite weak economic data. Swap rates rose 3-4bps today, a slight surprise given higher than expected jobless claims and declines in housing starts, building permits, and Philadelphia manufacturing. Minneapolis Fed President Kashkari contributed to the move, as he stated that it will likely take 1-2 years for inflation to slow to 2%. Chicago Fed President Goolsbee offered a more positive outlook, as he called last month’s inflation data “very encouraging,” where a continued trend would allow the Fed to cut rates. Meanwhile, the yen dropped for a sixth straight day, now near 158 per dollar with an increased probability of Japanese intervention.

Bank of England (BoE) hints at rate cuts. The BoE held its key policy rate steady at 5.25% for the 7th consecutive meeting, in-line with expectations, despite annual headline CPI falling from 2.3% to the central bank’s 2.0% target level in May. Encouragingly for doves, a record of the meeting indicated that a rate cut may be on the horizon. Two of the nine members of the Monetary Policy Committee voted to lower the policy rate 5%, and meeting minutes said for at least three of the members, the decision to hold rates was “finely balanced,” suggesting growing support for a rate cut.

Swiss National Bank (SNB) cuts rates for the second straight meeting. The SNB continues to outpace global central banks with rate cuts, as they reduced their benchmark rate by 25bps to 1.25%. Following the decision, the SNB announced updated (and lower) inflation forecasts of 1.3% in 2024, 1.1% in 2025, and 1.0% in 2026, a large contributor to the decision. Policymakers highlighted numerous positive developments, saying, “Over the medium term, economic activity should improve gradually, supported by somewhat stronger demand from abroad… [we have] inflationary pressures that slightly declined, we have also [a] strong Swiss franc.”