Has the Federal Reserve finished raising rates?

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Has the Federal Reserve finished raising rates?

The Federal Reserve is widely expected to keep interest rates on hold on Wednesday at the end of its latest policy meeting.

Investors will be on alert for any clues as to whether that means the world’s most powerful central bank is done raising borrowing costs or merely taking another pause in its historic tightening campaign.

Fed policymakers have indicated they expect to keep interest rates at their current level at the two-day meeting, a range of 5.25 to 5.5 per cent. That follows an increase in interest rates by 0.25 percentage points in July.

Fed officials are attempting to bring inflation down without sending the economy into a recession — a so-called soft landing. While inflation has dropped from a peak last summer above 9 per cent to below 4 per cent today, fears of a reacceleration in prices are growing.

The cost of petrol drove consumer prices higher in August, according to figures this week, though core inflation, which strips out the volatile food and energy sectors, continues to slow. US retail sales also grew more than forecast in August, the commerce department reported on Thursday, as a jump in petrol prices outweighed lacklustre spending elsewhere in the economy.

Senior Fed officials including Lorie Logan, head of the Dallas Fed, and John Williams, head of the New York Fed, have signalled they don’t expect to raise interest rates in September, though did stop short of saying that the fight against inflation was over.

“We expect the committee to continue shifting to a message of ‘higher for longer’,” said Oscar Munoz, chief US macro strategist at TD Securities. Fed chair Jay Powell’s press conference and a fresh set of rate projections by the central bank’s rate-setting committee “might have a hawkish flavour to them as Fed officials aren’t likely to fully close the door to additional rate increases”, Munoz added. Kate Duguid

Will the Bank of England raise rates again?

Investors are preparing for a big week in the UK’s economic calendar with August inflation figures due the day before the Bank of England’s interest rate decision. 

Despite growing signs of economic weakness, the Bank of England is widely expected to deliver its 15th consecutive rate increase on Thursday, which would bring benchmark interest rates to 5.5 per cent.

That could change if official figures show a significant drop in the UK’s inflation rate on Wednesday, but economists polled by Reuters predict the headline inflation rate to have accelerated last month to 7 per cent following a recent surge in petrol prices. They expect core inflation — which strips out food and energy prices — to stay at July’s level of 6.8 per cent. 

Traders will be looking closely at the language of the BoE’s Monetary Policy Committee’s statement accompanying its rate decision for hints on the end of the tightening cycle, following a “dovish hike” from the European Central Bank this week. 

Alongside the rate decision on Thursday, the Bank of England will announce how many gilts it plans to sell from its Asset Purchase Facility in the next financial year as part of its so-called quantitative tightening programme. 

Barclays expects the BoE to accelerate sales to £100bn, up from £80bn in the current financial year. Mary McDougall

Will China’s central bank ease monetary policy?

With economic readings out of China beginning to show signs of improvement, all eyes will be on the country’s benchmark rates announcement on Wednesday for the next big signpost on the trajectory of the world’s second-largest economy.

A median forecast from economists polled by Bloomberg predicts that the benchmark one-year loan prime rate will remain unchanged, as will the five-year LPR, which underpins mortgage rates in China.

Becky Liu, head of China macro strategy at Standard Chartered, said the timing of the recent cut by the People’s Bank of China to the level of Chinese lenders’ required reserves “suggests that the PBoC’s monetary policy easing could stay bold in the remainder of this year”.

“We do not rule out the possibility for one-year and five-year loan prime rates to be lowered next week,” she added. “These developments will likely lead to lower China rates across the board.”

Others were less optimistic about the odds of a cut due to the downward pressure further easing would likely put on the renminbi’s dollar exchange rate.

Robert Carnell, head of Asia-Pacific research at ING, said that “given the current challenges, with the People’s Bank of China helping to support the [renminbi], it is unlikely the central bank will announce any further rate cuts.” Hudson Lockett