Why the world’s four top banks all signal caution

Caution appears to be the new watchword among the world's largest banks. When it comes to raising interest rates, many, including the US Federal Reserve and the Bank of Japan, are choosing to exercise more restraint.

First Look

Caution appears to be the new normal among the world’s top central banks.

The US Federal Reserve, the Bank of England, the Swiss National Bank, and the Bank of Japan will all be holding meetings within days of each other, and each is expected to avoid changes to their respective stimulus programs.

In Britain, the upcoming referendum on whether or not to leave the European Union on June 23 is at the forefront of most investment discussions.

After raising interest rates in December, the US Federal Reserve has so far held off on boosting rates further. Fed Chairwoman Janet Yellen has dropped hints that a summer rate hike could be on the way, although a dismal May jobs report and the upcoming "Brexit" referendum now make a rate rise on June 15 increasingly unlikely.

After months of steady growth, the US job market appeared to hit a hiring plateau in May, adding just 38,000 new jobs. A recent Reuters poll of 90 economists shows that four-fifths now expect a rate rise to occur in July or September, with most leaning toward September.

"Weak labor market data have messed up the carefully-prepared script for the Fed's next rate move. An interest rate rise at the meeting next week is off the table," Christoph Balz, economist at Commerzbank, told Reuters. "However ... the U.S. labor market recovery is not over yet and a rate hike at the meeting in July is therefore still on the agenda."

Economists in Britain expect the Bank of England to focus on planning for uncertainty and liquidity in the market in anticipation of a vote to leave the European Union. Unemployment in Britain is forecast to remain close to 5.1 percent, a level close to full employment. The British economy has slowed somewhat, which analysts attribute to uncertainty ahead of the referendum. Instead of raising interest rates, analysts say, Britain may in fact need to cut them.

Japan’s low, almost nonexistent inflation rate has remained more or less the same for the past two decades. Whereas the United States will likely avoid raising its inflation rate in June but possibly raise them slightly in July, the Bank of Japan will likely do the opposite in July, adding more stimulus to the economy. How much it plans to raise the interest rate will depend on the yen exchange rate, which jumped earlier this year.

Material from Reuters was used in this report.