The week ahead: Fed and ECB interest rate decisions, figures from Big Tech

The week ahead is this time mainly dominated by the US interest rate decision. On Wednesday evening, the Federal Reserve will announce whether interest rates will rise again after the September hike. Investors are mainly counting on a break, but Fed Chairman Kevin Warsh's message could change expectations for December sharply.

The central bank has to make a difficult decision. Inflation is still well above the 2 percent target, while higher interest rates can further slow down the economy. As a result, US bond yields, the dollar and stocks in particular could move sharply on Wednesday evening.

The timing makes this meeting extra exciting. A day after the decision, new figures on US growth and inflation follow. They can immediately make it clear whether the Fed has room to wait longer.

The week starts without a big American macro figure. Tuesday will see figures on durable goods, consumer confidence and the sale of new homes, among other things. Together, these give an initial picture of the strength of the American economy.

These figures are unlikely to change Wednesday's decision. The two-day interest meeting has already begun. They can, however, determine how investors explain Warsh's words. Strong consumers and companies give the Fed more room to keep interest rates high. Weak figures make a new increase more difficult.

Thus, the run-up mainly revolves around the question of how much damage the higher interest rate already causes. The Fed wants to reduce inflation without hitting the economy unnecessarily hard. Precisely because both risks are still visible, the explanation becomes more important than just the decision.

In September, the Fed raised the policy rate by a quarter of a percentage point to a range of 3.75 to 4 percent. That was the first increase since 2023. For Wednesday, the market mainly expects the central bank to leave interest rates unchanged.

The interest decision will appear at 19:00 Dutch time. Half an hour later, Warsh gives a press conference. Investors then mainly listen to clues about December. If he says that inflation remains persistent, the likelihood of a further increase may increase.

This works step by step on the markets. Expectations of higher interest rates may push up interest rates on US government bonds. As a result, bonds become more attractive and the dollar can become stronger. Growth stocks, gold and Bitcoin (BTC) in particular can then come under pressure.

The quarterly figures of Microsoft and Alphabet will follow shortly after the press conference. This will give the American technology sector two different tests in one evening.

The Fed determines how much investors want to pay for future growth, while companies have to show whether their large investments in artificial intelligence generate enough revenue.

The first estimate of US economic growth in the third quarter follows on Thursday afternoon. At the same time, the Bureau of Economic Analysis publishes the PCE price index for September. That is the measure of inflation that the Fed itself looks at the most.

The previous measurement showed that prices were 3.4 percent higher than a year earlier. This is clearly above the target of 2 percent. If it turns out on Thursday that the economy is growing strongly and inflation is rising further, an interest rate pause can quickly be seen as temporary. On the contrary, a cooling economy and less price pressure would support a longer wait.

The European Central Bank will also take an interest rate decision on Thursday. The ECB is also expected to take the place. For European investors, the difference in tone is especially important.

If the Fed warns more emphatically about inflation than the ECB, it could make the dollar stronger against the euro and widen interest rate differentials between the two regions.

After the closure of Wall Street, Amazon will come up with quarterly figures, which will be the next test for the AI trade, which has recently come under pressure. Investors and lenders are becoming increasingly critical of the huge investments in AI, and Elon Musk predicts that many neoclouds will die out.