CHARTS: It could be years until some major central banks hike rates

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In a world where negative interest rates are quickly becoming the norm rather than the exception, it should come as no surprise that expectations for rate hikes in developed economies are fading fast.

This phenomenon is no better demonstrated than in the charts below, supplied by Morgan Stanley’s cross-asset strategy team, that reveal current market expectations on when the US Federal Reserve, European Central Bank (ECB) and Bank of England (BoE) are likely to deliver their next rate hike.

Here’s when markets believe the US Federal Reserve will follow up its December 2015 rate hike with another.

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On current pricing, markets suggest it’s a 50/50 bet on whether the Fed will deliver another rate hike this year, substantially below the four seen by FOMC members in December last year and market forecasts for two, maybe three, seen at the beginning of the year.

While expectations for higher rates in the US have been scaled back significantly, the pace of monetary tightening there appears to be near-rapid compared to the Eurozone and UK.

This is the when markets think the ECB will next raise rates, something that may perhaps take deposit rates in the Eurozone back into positive territory.

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And here’s the same chart, but only for the Bank of England.

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Rather than pricing in rate hikes, markets currently expect the ECB and BoE to be cutting rates in the near term, the latter perhaps as soon as next week.

With expectations currently favouring monetary easing, rather than tightening, in the years ahead, the ECB is now not expected to lift interest rates until late 2019. 

The BoE, having been widely tipped to be the next major central bank to lift rates after the US Fed in recent years, is now expected to wait even longer to raise rates with markets now pushing out the timing of the first rate hike to early 2020.

More or less five years for both, after delivering unprecedented monetary policy easing in the years following the global financial crisis.

Obviously these are long-term horizons, and plenty can change in this time, but if there’s one thing markets have become accustomed to in recent years its underwhelming global economic growth, and as a consequence, increasingly aggressive.

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