Main Topic: The U.S. Federal Reserve's need to raise interest rates further to bring down inflation.
Key Points:
1. Governor Michelle Bowman supports the Fed's quarter-point increase in interest rates last month due to high inflation, strong consumer spending, a rebound in the housing market, and a tight labor market.
2. Bowman expects additional rate increases to reach the Fed's 2 percent inflation target.
3. Monetary policy is not predetermined, and future decisions will be data-driven. Bowman will consider consistent evidence of inflation decline, signs of slowing consumer spending, and loosening labor market conditions.
### Summary
The UK economy is facing inflationary pressures as measures of underlying inflation remain high, leading to expectations of further interest rate rises. However, different sectors of the economy are experiencing mixed fortunes, with some industries booming while others face challenges. The cost of living crisis is far from over, with food price inflation still expected to remain high.
### Facts
- Measures of underlying inflation, such as core inflation, remain stuck at a high rate even as headline inflation falls.
- Services inflation has increased to a joint 31-year high.
- Two-year and ten-year gilt yields have risen to their highest levels since the 2008 financial crisis, indicating market concerns about inflation.
- Some sectors, such as travel firms, hotels, and restaurants, are booming due to increased consumer spending on leisure, while others, like construction firms, are facing challenges due to rising costs.
- Food price inflation is expected to remain in double digits for the rest of the year, contributing to ongoing cost of living pressures.
- Higher interest rates may be necessary to temper economic demand and align it with the reduced supply potential of the economy caused by factors such as fewer workers, trade barriers, and reduced investment.
- Rising interest rates could potentially hamper efforts to improve the economy's productivity.
- The housing market is experiencing a holding pattern, with longer mortgage terms being offered to manage rising interest rates.
- Bank of England governor Andrew Bailey does not consider the housing market situation a "correction" or crisis.
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- Inflationary pressures persist in the UK economy.
- Different sectors of the economy are experiencing mixed fortunes.
- Food price inflation remains high, contributing to ongoing cost of living pressures.
- Interest rates are expected to rise further due to inflation concerns.
- The housing market is in a holding pattern with longer mortgage terms being offered.
- Market conditions and economic recovery remain uncertain.
### Summary
Economists and the Reserve Bank of Australia are determined to combat inflation, but their focus on wage increases as the cause of inflation overlooks the pricing power of large firms and the lack of competition in the market.
### Facts
- Economists argue that businesses raise prices in response to market forces, not out of greed.
- However, the rapid rise in prices is often perpetuated by workers and their unions demanding higher wages to keep up with the cost of living.
- The solution proposed is for workers to accept a small pay rise and for interest rates to be raised to put pressure on workers with mortgages.
- The Reserve Bank believes that a rise in the unemployment rate by 1 percentage point to 4.5% would help bring down inflation.
- An increase in competition between small firms is needed to make the price mechanism work as intended, but oligopolies dominate many industries in Australia.
- While other countries have recognized rising profit margins as a cause of inflation, the Australian government has dismissed this analysis.
### Opinion
- The focus on wage increases as the main cause of inflation overlooks the pricing power of large firms and the lack of competition in the market.
- Strengthening laws defending competition is necessary to fix inflation.
Brazil's annual inflation accelerated more than expected in August, reaching 4.24%, as the central bank continues to cut interest rates in its efforts to boost the economy.
Australia's inflation slowed to a 17-month low in July due to declines in holiday travel and fuel prices, leading to expectations that the Reserve Bank of Australia will pause its rate hikes, signaling a potential end to tightening measures.
The Federal Reserve's preferred inflation gauge increased slightly in July, suggesting that the fight against inflation may be challenging, but the absence of worse news indicates that officials are likely to maintain interest rates.
The Reserve Bank of Australia is expected to keep its key interest rate unchanged at 4.10% as inflation slows, but economists anticipate a final hike in the next quarter.
The Federal Reserve is considering whether to raise interest rates even higher to combat inflation, but some policymakers believe that the current level is sufficient and should be maintained for an extended period.
The Reserve Bank of Australia is expected to keep its key cash rate unchanged as inflation eases, while Asian markets show signs of revival due to China's efforts to support its property sector and wider economy.
Australia's economy grew more than expected in the second quarter, driven by exports and investment, while household consumption remained weak due to high interest rates; however, productivity and rising labor costs remain concerns for the Reserve Bank of Australia.
Inflation has decreased significantly in recent months, but the role of the Federal Reserve in this decline is questionable as there is little evidence to suggest that higher interest rates led to lower prices and curtailed demand or employment. Other factors such as falling energy prices and the healing of disrupted supply chains appear to have had a larger impact on slowing inflation.
The British public's long-term inflation expectations rose in August, posing a challenge for the Bank of England, which is expected to raise interest rates later this month.
Inflation is expected to rise in August as oil and gasoline prices increase, putting pressure on the economy and potentially leading to higher interest rates and a stronger dollar.
The Consumer Price Index is expected to show an increase in inflation in August, with headline inflation rising to 3.6% and core inflation easing to 4.4%, but the market is accustomed to this trend and the Federal Reserve is unlikely to change its rates at the upcoming meeting.
The latest inflation report is expected to show a steady increase in consumer prices, with economists predicting a 3.6% overall inflation compared to last year, indicating that inflation is gradually coming down but still remains above the Federal Reserve's target.
U.S. consumer prices are expected to have increased the most in 14 months in August due to rising gasoline costs, while underlying inflation is forecasted to remain moderate, potentially prompting the Federal Reserve to keep interest rates steady.
Despite a spike in gas prices, the rise in inflation appears to be easing gradually, with core prices exhibiting a slower increase in August compared to July, suggesting that price pressures are being brought under control.
Inflation in the US accelerated for the second consecutive month in August due to rising costs of rent and gasoline, with the consumer price index rising 0.6% from the previous month and 3.7% from the same time last year.
US wholesale inflation in August exceeded expectations with a 0.7% increase, driven by a surge in energy costs and gasoline prices, providing the Federal Reserve with new data to consider in its decision on interest rates.
Israel's annual inflation increased to 4.1% in August, surpassing the central bank's target range of 1%-3%, as consumer prices rose by 0.5%, driven by increases in the cost of fresh vegetables, culture and entertainment, transportation, and housing.
New research suggests that elevated interest rates may not have been the main cause of the decline in inflation, sparking a debate about whether the Federal Reserve needs to raise rates again.
"Inflation expectations can influence actual inflation, as people's behavior and attitudes towards the economy play a role in price changes," according to Joanne Hsu, director of the Surveys of Consumers at the University of Michigan.
Inflation in Britain slowed for a third consecutive month in August, defying expectations of a rise due to higher fuel prices, with consumer prices rising 6.7 percent compared to the previous year, driven by slower increases in food prices and a decline in hotel room costs. Core inflation also fell more than anticipated, indicating a potential easing of inflationary pressures, though price growth remains uncomfortably high. The Bank of England is set to announce its decision on interest rates, with growing speculation that rates may be held steady due to signs of slowing inflation and a weak economy.
The U.S. Federal Reserve kept interest rates steady but left room for potential rate hikes, as they see progress in fighting inflation and aim to bring it down to the target level of 2 percent; however, officials projected a higher growth rate of 2.1 percent for this year and suggested that core inflation will hit 3.7 percent this year before falling in 2024 and reaching the target range by 2026.
Japanese consumer inflation grew above expectations in August, potentially signaling a move away from negative interest rates as the Bank of Japan meets to discuss its monetary policy.
Despite expectations of higher interest rates causing a spike in unemployment and a recession, the Federal Reserve's rate hikes have managed to slow inflation without dire consequences, thanks to factors such as replenished supplies, changes in the job market, and continued consumer and business spending.
The Federal Reserve's preferred measure of inflation decreased in August, indicating that efforts to combat inflation are progressing, although there are still price growth pressures that could lead to further interest rate hikes by the central bank.
Consumer spending in the US increased by 0.4% in August, while core inflation fell below 4.0% for the first time in over two years, potentially reducing the likelihood of an interest rate hike by the Federal Reserve.
Fuel prices in Australia are rising, which could contribute to an increase in quarterly inflation, leading to concerns about the future of oil and the reliance on fossil fuels as efforts to reduce carbon emissions continue.
Consumers perceive inflation as much higher than official figures indicate at the moment, largely due to sharp increases in the price of things like restaurant dining, hotel accommodation, and gasoline.
Underlying US inflation is expected to rise, supporting the idea that interest rates will need to remain higher for a longer period of time, as indicated by central bankers.
Mortgage rates have increased over the last seven days, with both 15-year fixed and 30-year fixed rates rising, and there has also been an inflation in the average rate of 5/1 adjustable-rate mortgages. The Federal Reserve's rate hikes to combat inflation have indirectly influenced the mortgage rates, but there is still potential for further rate increases if inflation doesn't moderate.
Consumer inflation expectations for the next 12 months and three years ahead increased slightly, while expectations for nominal income growth over the next 12 months increased slightly but expectations for nominal spending growth declined somewhat; expectations for economic growth over the next 12 months became slightly more negative and the expected unemployment rate in 12 months’ time increased marginally; expectations for growth in the price of homes over the next 12 months slightly increased, and expectations for mortgage interest rates 12 months ahead rose marginally.
Wholesale level inflation surged more than expected in September, indicating the challenge of controlling price pressures in the economy, which has implications for the Federal Reserve's interest rate decisions.
The U.S. government's upcoming inflation report is expected to show a cooling off of inflation, with overall prices for consumers rising by 0.2% compared to August and 3.6% compared to a year ago, and core inflation expected to be up 4.1% from September last year, indicating slower price increases in September than in August.
The upcoming monthly inflation report is expected to show that inflation in the US is cooling off, with overall prices for consumers rising by 0.2% compared to August and 3.6% compared to a year ago, indicating slower price increases in September than in August. However, if the report reveals that inflation remained higher than expected, especially in core areas, it may prompt the Federal Reserve to raise interest rates again, further slowing the economy.
U.S. consumer prices rose in September due to surging rental costs, but underlying inflation pressures remained moderate, suggesting that the Federal Reserve is unlikely to raise interest rates next month.
Consumer prices in the US grew at the same pace in September as in August, indicating that progress in controlling inflation may be stalling, prompting Federal Reserve officials to remain cautious with interest rate decisions.
The latest data is expected to show that fuel prices in Australia rose by more than 7% in the three months to the end of September, adding a quarter of a percentage point to inflation due to global factors such as the war in Ukraine, supply constraints, and the weaker Australian dollar. The conflict between Israel and Hamas in the Middle East may further increase prices.
Australian inflation was unexpectedly strong in the third quarter due to broad-based and persistent cost pressures, increasing the likelihood of an interest rate hike as early as next month.
Reserve Bank of Australia (RBA) Governor Michele Bullock warns that the bank will raise interest rates again if inflation rises and does not return to its target range of 2-3% within a reasonable timeframe, emphasizing the need to closely monitor incoming data.
Despite a significant decrease in annual inflation growth in Australia, there are calls for the Reserve Bank to raise interest rates, which would be unjustified and detrimental to low- to middle-income earners.
Tokyo's core consumer inflation unexpectedly accelerated in October, indicating broader price pressures and raising expectations of a near-term end to ultra-low interest rates, which may lead the Bank of Japan to revise up its inflation forecasts.
