Written by Noreen Burke

Investing.com – The world’s major central banks are set to wrap up 2022 with massive interest rate hikes as their battle against inflation continues. With the Federal Reserve expected to raise by half a point at Wednesday’s meeting, investors will focus instead on indications of how much higher interest rates will eventually go. US inflation data on Tuesday will provide fresh clues to the Fed’s plans. The double whammy of inflation data and the Federal Reserve meeting is likely to set the tone for US stocks for the rest of the year and beyond. Meanwhile, the Bank of England and the European Central Bank are expected to raise interest rates by half a point when they meet on Thursday. Here’s what you need to know to start your week.

1. Fed meeting

It indicates a 78% chance that the Fed will raise 50 basis points on Wednesday, with a 21% chance of a 75 basis point hike, with those odds changing slightly after data on Friday showed a slightly more-than-expected hike last month.

The US central bank raised interest rates by 375 basis points this year, including four consecutive increases of 75 basis points, in the fastest rate hike cycle since the 1980s, to combat spiraling inflation.

Federal Reserve Chairman Jerome Powell will be holding his last press conference of the year after recently suggesting that it may be time to slow down the pace of interest rate increases.

While the Fed has indicated that the pace of increases is likely to slow, interest rates are likely to end at a higher level than officials likely indicated in September, so the focus may turn to signals of how interest rates may eventually rise in 2023.

2. US consumer price index

The US publishes consumer price inflation data for November on Tuesday, with economists expecting the annual rate of inflation to slow from 7.7% the previous month.

Recent strong US jobs data added to inflation fears, after wage growth accelerated in November.

Data on Friday showed a slight more-than-expected rise last month amid a jump in services costs, but the underlying trend is easing as supply chains tighten and demand for goods slumps.

“While consumer price index commodity prices are still likely to decline in November due to lower used car prices, the renewed increase in commodity producer price index highlights that there are still some underappreciated upside risks to commodity prices in Next year,” Veronica Clark, an economist at Citigroup in New York, told Reuters.

3. US stocks

Equity markets will be preparing for the double dose of CPI data and the Federal Reserve’s decision that will determine the direction of markets for the remainder of this year and into 2023.

The recent recovery stalled last week as stronger-than-expected PPI data fueled concerns that the Fed will need to keep interest rates higher for longer, which could lead to Recession.

A higher-than-expected CPI could reinforce fears of further Fed tightening, putting pressure on stocks.

“If CPI comes in north of expectations or even doesn’t fall at all, it’s not going to be positive for the market,” Tom Heinlein, national investment analyst at US Bank Wealth Management, told Reuters.

With Wednesday’s rate hike largely taken for granted, Wall Street will be focused on the Fed’s outlook for how interest rates will eventually rise.

Also key are Powell’s views on inflation and the possibility of the economy slipping into recession next year – a notion that has dominated market sentiment this year.

4. Bank of England

The deteriorating economic outlook is unlikely to stem a 50 basis point hike in prices to 3.5%, the highest level since 2008, when it meets on Thursday.

The UK will release data for November on Wednesday that may show inflation has peaked after hitting a 41-year high of 11.1% in October, more than five times the Bank of England’s 2% target.

Most of the increase was driven by the energy price shock from Russia’s war in Ukraine, but other factors such as the labor shortage caused by Brexit and the COVID-19 pandemic could make inflation slow to fall.

Britain’s economy is heading into recession and households are facing historic pressures on living standards after the government introduced a tough budget to try to restore Britain’s financial reputation.

5. European Central Bank

Market watchers expect the bank to raise interest rates by 50 basis points when it meets on Thursday after data last month showed annual inflation slowed for the first time in a year and a half, dropping to 10.6% in October. .

The European Central Bank has raised interest rates by 200 basis points since July, the fastest pace on record, but inflation remains well above its 2% target.

While there may be a slowdown in the pace of interest rate hikes, the ECB is far from finished and markets will be looking for clues as to where the 1.5% key deposit rate will end up.

“They (policy makers) will remain hawkish and aggressive because they want inflation expectations to remain anchored,” Frederic Ducrozet, head of macroeconomic research at Pictet Wealth Management, told Reuters.

Reuters contributed to this report