All signs point to another interest rate hike at the Swiss National Bank (SNB) on June 22. Although inflation in Switzerland is comparatively low, looking at certain components, such as expected rises in rental prices due to the higher reference interest rate, suggests that inflation is likely to prove more stubborn than desired.

Hawkish Pause

The US presents a different picture, however. The majority of economists expect the Federal Reserve Board's (Fed) Open Market Committee to leave the interest rate spread unchanged at 5 to 5.25 percent on Wednesday evening. However, the door is likely to remain open for at least one more rate hike, someone one analyst referred to as a «hawkish pause.»

The Fed has now raised interest rates ten times in a row since the turnaround in interest rates was heralded in March last year.

Waiting for Effects

Fed Chairman Jerome Powell, has indicated that he favors a pause in rate hikes to assess the impact of past measures as well as recent bank failures on credit conditions and the economy.

In addition, following the banking turmoil, including around Silicon Valley Bank, the Fed is likely to act cautiously, so as not to cause large swings in market prices and put undue pressure on the financial sector.

The committee's decision is unlikely to be unanimous. While some are more likely to look at core inflation, which remains stubborn, and rate it higher, others see signs of cooling in, for example, the purchasing managers' index or labor market data. 

The market will be watching closely to see what the «dot plot,» or guide, of further interest rate developments, will look like. This could then point to a further interest rate hike as early as July or as late as September.

Certain Hike

On Thursday, at the ECB Council meeting anything other than a further increase of 25 basis points to 3.5 percent would come as a big surprise. Economists expect the peak of 3.75 to be reached at the subsequent meeting in July. 

In the eurozone, the economy is already weakening with both Germany and Euroland having already slipped into recession with three consecutive quarterly declines in gross domestic product (GDP).

Economic Sky Clouded

By comparison, at 1.5 percent, interest rates in Switzerland are moderate. Experts are discussing how high the interest rate step will be on June 22. While Thomas Stucki of St. Galler Kantonalbank sees 50 basis points rise, the majority leans toward a step of 25 basis points, followed by a further step in the fall.

The decisive factors are likely to be the continued stable economy and the robust, almost tight Swiss labor market. However, the dark recession clouds beyond the country's borders have also clouded the Swiss economic outlook.