Interest rates and inflation take center stage

This week will be dominated by the Fed interest rate decision and meeting. While there is no expected rate increase at this meeting, the conditions have changed drastically over the last few months. The markets are pricing in a 25% chance of a rate cut by the end of the year and no chance of a rate increase. The importance of this meeting will be the insights of what the Fed plans to do with their balance sheet reduction schedule. Investors will be looking at how the Fed plans to continue, or delay, the balance sheet reduction in the wake of global economic trends. Other central banks have made it clear that they plan to keep their balance sheets as is, or expanding. It will be important to see if the US continues to buck the global trend or not. If so this will keep assets coming into the US Dollar, and dollar denominated assets. 

A second factor to watch this week (though still interest rate related) is inflation numbers. The UK in the midst of Brexit is going to release their numbers Wednesday, with the Pound relatively range bound there isn't too much expectation of inflation getting out of control in the near term. The next day the UK will announce its interest rate decision with no expected action. Japan and Canada will also provide inflation numbers with forecasts near the previous levels. Large changes to the upside in these numbers will create a conundrum for central banks as they prepare for lower growth. A shrinking inflation number will provide the central banks with an open field for more monetary expansion in the event of slowing growth.