A 'momentous week' ahead as the Fed, ECB and Bank of Japan near pivot point

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The U.S. Federal Reserve, Bank of Japan and European Central Bank will all announce key interest rate decisions this week, with each potentially nearing a pivotal moment in their monetary policy trajectory.

As Goldman Sachs strategist Michael Cahill put it in an email Sunday: «This should be a momentous week.»

«The Fed is expected to deliver what could be the last hike of a cycle that has been one for the books. The ECB will likely signal that it is coming close to the end of its own cycle out of negative rates, which is a big 'mission accomplished' in its own right,» G10 FX Strategist Cahill said.

«But as they are coming to a close, the BoJ could out-do them all by finally getting out of the starting blocks.»

Each central bank faces a very different challenge. The Fed, which concludes its monetary policy meeting on Wednesday, last month paused its run of 10 consecutive interest rate hikes as June consumer price inflation stateside fell to its lowest annual rate in more than two years.

But the core CPI rate, which strips out volatile food and energy prices, was still up 4.8% year-on-year and 0.2% on the month.

Policymakers reiterated their commitment to bringing inflation down to the central bank's 2% target, and the latest data flow has reinforced the impression that the U.S. economy is proving resilient.

The market is all but certain that the Federal Open Market Committee will opt for a 25 basis point hike on Wednesday, taking the target Fed funds rate to between 5.25% and 5.5%, according to the CME Group FedWatch tool.

Yet with inflation and the labor market now cooling consistently, Wednesday's expected hike could mark the end of a 16-month run of almost constant monetary policy tightening.

«The Fed