Main Topic: Federal Reserve officials express concern about inflation and suggest more rate hikes may be necessary.
Key Points:
1. Inflation remains above the Committee's goal, and most participants see significant upside risks to inflation.
2. The recent rate hike brought the federal funds rate to its highest level in over 22 years.
3. There is uncertainty about the future direction of policy, with some members suggesting further rate hikes and others cautious about the impact on the economy.
### Summary
Reserve Bank Assistant Governor Karen Silk says the Official Cash Rate is working despite sticky core inflation and record high employment.
### Facts
- 📈 Headline inflation has been falling for the past year, but non-tradable inflation has not declined significantly.
- 📉 Core inflation has been stuck at 5.8% for the past three quarters.
- 🏠 The average mortgage rate is steadily climbing towards 6%.
- 📊 There are signs that the OCR is working to restore balance in the economy, such as falling forward orders for business and decreasing durable spending.
- 💰 Demand for residential mortgages has fallen 32.9% in the six months ended March.
- 📈 The Reserve Bank expects non-tradable inflation to be lower in the coming quarter on an annual basis, but the quarterly rate may still be high.
- ⛽ Higher petrol prices could lead to tradable inflation having its hottest quarter in two decades.
- 🎯 The OCR mostly targets domestic, or non-tradable, inflation.
- 🎯 The Reserve Bank's forecasts have been criticized for missing its inflation forecast, but Silk defends the forecasts, stating that they are as accurate as any other local economic institution.
- 📆 The Reserve Bank has forecasted that headline inflation will be back in the target range one year from now.
- 🤔 There is doubt about whether inflation will drop below 3% in September 2024, as predicted.
- 💲 Another rate hike may be required to achieve the Reserve Bank's inflation target.
- 💱 Some economists believe that the economic downturn could be worse than expected, making a rate hike unlikely in the near future.
The US Federal Reserve must consider the possibility of the economy reaccelerating rather than slowing, which could have implications for its inflation fight, according to Richmond Fed President Thomas Barkin. He noted that retail sales were stronger than expected and consumer confidence is rising, potentially leading to higher inflation and a need for further tightening of monetary policy.
Market optimism around the US economy may decline as recent shifts in the Treasury yield curve indicate a potential trigger for a correction or rapid unwind in positions, with investors closely watching Federal Reserve Chair Jerome Powell's upcoming speech.
The spike in retail inflation has raised uncertainty for investors and savers, with expectations of interest rate cuts being pushed to the next fiscal year and the possibility of a rate hike. The Reserve Bank of India projects inflation to stay above 5% until the first quarter of 2024-25, and food price pressures are expected to persist. While inflation may impact stock market returns, gold and bank deposit rates are expected to remain steady.
Federal Reserve Chair Jerome Powell stated that inflation remains too high and the central bank is prepared to raise rates further if necessary, although he did not suggest a tougher stance, leading to the possibility that the Fed may not increase its benchmark target range. However, economists argue that the Fed's current policy is already too tight and the tightening of credit may lead to a recession.
The Federal Reserve meeting in September may hold the key to the end of the tightening cycle, as markets anticipate a rate hike in November, aligning with the Fed's thinking on its peak rate. However, disagreement among Fed policymakers regarding the strength of the economy and inflation raises questions about the clarity and certainty of the Fed's guidance. Market skeptics remain uncertain about the possibility of a "soft landing," with sustained economic expansion following a period of tightening.
The U.S. jobs market shows signs of cooling as Labor Day approaches, giving investors relief from concerns about a potential Federal Reserve interest rate hike. However, global market rally and uncertainty around China's market rebound indicate that risks still persist.
The outlook for the euro area remains uncertain as economic activity has slowed and indicators suggest weakness ahead, but the labor market remains resilient; a restrictive monetary policy is critical for bringing inflation back to the 2% target in a timely manner, and a data-dependent and robust approach to monetary policy is warranted due to the high level of uncertainty.
The U.S. economy is defying expectations with continued growth, falling inflation, and a strong stock market; however, there is uncertainty about the near-term outlook and it depends on the economy's future course and the actions of the Federal Reserve.
Market jitters persist despite economists downplaying the chances of a recession, as global stocks and US futures remain in the red and inflation fears continue to linger.
The European Central Bank faces a difficult decision on whether or not to hike rates as the economy slows, while the US releases inflation numbers and rising oil prices create concerns about price pressures.
A prolonged strike by the United Auto Workers, along with other factors such as higher oil prices and rebounding medical costs, could lead to an unexpected inflation surprise in the fourth quarter and potentially keep the Fed from making interest-rate cuts, according to analysts.
Federal Reserve policymakers are not eager to raise interest rates, but they are cautious about declaring victory as they monitor data such as inflation and job growth; most do not expect a rate hike at the upcoming policy-setting meeting.
Bond traders are anticipating that the Federal Reserve will continue with interest-rate hikes, and next week's consumer-price index report will provide further insight on how much more tightening may be required to control inflation.
The Federal Reserve is unlikely to panic over the recent surge in consumer prices, driven by a rise in fuel costs, as it considers further interest rate hikes, but if the rate hikes weaken the job market it could have negative consequences for consumers and President Biden ahead of the 2024 election.
The Federal Reserve faces a critical decision at the end of the year that could determine whether the US economy suffers or inflation exceeds target levels, according to economist Mohamed El-Erian. He suggests the central bank must choose between tolerating inflation at 3% or higher, or risking a downturn in the economy.
Despite rising gas prices, Americans remain optimistic about inflation easing, as expectations for inflation rates in the year ahead have fallen to the lowest level since March 2021, according to a consumer sentiment survey from the University of Michigan. However, concerns are surfacing about a potential government shutdown, which could dampen consumer views on the economy.
Potential risks including an autoworkers strike, a possible government shutdown, and the resumption of student loan repayments are posing challenges to the Federal Reserve's goal of controlling inflation without causing a recession. These disruptions could dampen consumer spending, lead to higher car prices, and negatively impact business and consumer confidence, potentially pushing the economy off course.
The positive momentum surrounding Bitcoin's price is fueled by expectations that the Federal Reserve will not hike rates again this year, while market participants remain optimistic despite the strength of the United States Dollar Index.
The Federal Reserve's upcoming meeting will focus on the central bank's expectations for key indicators such as interest rates, GDP, inflation, and unemployment, while many economists believe that the Fed may signal a pause in its rate-hiking cycle but maintain the possibility of future rate increases.
Wall Street fears that the Federal Reserve will push out the timing for rate cuts next year, sparking concerns of a hawkish pause and increasing selling pressure, despite a trend of rapid disinflation and the potential for a higher neutral interest rate.
The Federal Reserve's uncertainty about 2024 is causing concern for the markets.
The Federal Reserve is expected to keep its benchmark lending rate steady as it waits for more data on the US economy, and new economic projections suggest stronger growth and lower unemployment; however, inflation remains a concern, leaving the possibility open for another rate increase in the future.
Central banks around the world may have reached the peak of interest rate hikes in their effort to control inflation, as data suggests that major economies have turned a corner on price rises and core inflation is declining in the US, UK, and EU. However, central banks remain cautious and warn that rates may need to remain high for a longer duration, and that oil price rallies could lead to another spike in inflation. Overall, economists believe that the global monetary policy tightening cycle is nearing its end, with many central banks expected to cut interest rates in the coming year.
Summary: The markets have experienced various shocks this week, with the most significant one coming from the Federal Reserve, making labor data more crucial than Fed discussions.
The Federal Reserve's measure of inflation is disconnected from market conditions, increasing the likelihood of a recession, according to Duke University finance professor Campbell Harvey. If the central bank continues to raise interest rates based on this flawed inflation gauge, the severity of the economic downturn could worsen.
The Federal Reserve left interest rates unchanged while revising its forecasts for economic growth, unemployment, and inflation, indicating a "higher for longer" stance on interest rates and potentially only one more rate hike this year. The Fed aims to achieve a soft landing for the economy and believes it can withstand higher rates, but external complications such as rising oil prices and an auto strike could influence future decisions.
The U.S. economy is facing uncertainty and conflicting estimates, with regional Fed estimates showing significant divergence and risks of economic contraction or slow growth, while factors such as health insurance costs, wage growth, home prices, and rising gas and commodity prices could potentially cause inflation to rebound. Moreover, there are still risks and challenges ahead, making declarations of victory premature, according to Larry Summers.
Investors are focusing on the release of economic reports on GDP and inflation as they evaluate the Federal Reserve's stance on interest rates and its efforts to cool down inflation. Metal prices have slipped due to concerns over global demand and the economy, and the risk of a government shutdown is also adding to the bearish sentiment. Earnings reports from various companies and core PCE inflation data are expected in the week ahead.
Despite predictions of higher unemployment and dire consequences, the Federal Reserve's rate hikes have succeeded in substantially slowing inflation without causing significant harm to the job market and economy.
Wall Street struggles as the Federal Reserve's interest rate strategy and imminent government shutdown cause uncertainty, while oil price rally raises concerns about inflation and potential rate cuts.
The US economy is currently in decent shape, with a resilient labor market, moderated inflation, and expected strong GDP growth, but there are potential headwinds and uncertainties ahead, including UAW strikes, student debt payments resuming, and the risk of a government shutdown, which could collectively have a significant impact on the economy. Additionally, the labor market is slowing down, inflation remains a concern, and the actions of the Federal Reserve and other factors could influence the economic outlook. While there are reasons for optimism, there are also risks to consider.
The market is facing uncertainties due to a long list of negatives that have yet to be fully discounted, including concerns about the economy, higher interest rates, a possible government shutdown, an auto strike, high oil prices, and the restart of student loan payments.
Minneapolis Federal Reserve President, Neel Kashkari, is uncertain if the current interest rate is sufficient to control inflation, as sectors of the economy that normally react to rate hikes continue to perform well.
Investors are growing concerned about the possibility of stagflation as oil prices rise and inflation remains stubbornly high, with some predicting a recession is on the horizon. The recent surge in oil prices has amplified the risk of stagflation, characterized by slow growth, high unemployment, and soaring inflation. While unemployment rates are relatively low, fears are growing that mounting layoffs could change this. Analysts warn that the surge in oil prices will likely keep inflation higher and negatively impact economic growth. The global economy's escape from stagflation is now being reconsidered.
The US economy is facing turbulence as inflation rates rise, causing losses in US Treasuries and raising concerns about the impact of high interest rates on assets like Bitcoin and the stock market. With additional government debt expected to mature in the next year, there is a fear of financial instability and the potential for severe disruptions in the financial system. The Federal Reserve may continue to support the financial system through emergency credit lines, which could benefit assets like Bitcoin.
The Australian share market and broader economy are facing multiple threats, including rising interest rates, cracks in China's property sector, diminishing demand for construction materials, rising oil prices, and global fallout from the US political divide over debt levels, which could potentially result in substantial damage. There are concerns over a potential recession in the US, Australia, and the UK, with investors on edge due to recent volatility in equity markets and the inversion of the yield curve. Uncertainty and mixed signals in the market are leaving investors unsure about the future direction.
Overall inflation has moderated recently in the United States and euro area, but core inflation remains sticky, creating a challenge for central banks trying to meet their inflation targets. Financial conditions have eased, complicating the fight against inflation by preventing a slowdown in aggregate demand. The combination of loose financial conditions and a monetary policy tightening cycle may have dulled the effectiveness of monetary policy. There are risks of a repricing of risk assets and potential vulnerabilities in the financial sector, emphasizing the need for central banks to remain determined in their fight against inflation.
The U.S. labor market's strength may be at risk as the Federal Reserve's projected interest rate hikes could lead to a slowdown and increased consumer debt, potentially pushing the economy towards a recession.
The chaos in Washington and uncertainty surrounding a possible government shutdown could make it less likely for the Federal Reserve to raise interest rates again this year, as the economy and inflation appear to be cooling off.
Federal Reserve officials are not concerned about the recent rise in U.S. Treasury yields and believe it could actually be beneficial in combating inflation. They also stated that if the labor market cools and inflation returns to the desired target, interest rates can remain steady. Higher long-term borrowing costs can slow the economy and ease inflation pressures. However, if the rise in yields leads to a sharp economic slowdown or unemployment surge, the Fed will react accordingly.
Concerns surround the upcoming release of U.S. payrolls data and how hawkish the Federal Reserve needs to be, as global markets experience a period of calm following a tumultuous week that saw Treasury yields rise to 16-year highs, crude oil prices drop, equities decline, and the yen strengthen. Japanese government bond yields are also causing concern, as investor sentiment towards the Bank of Japan's stimulus remains low.
Wall Street and policymakers at the Federal Reserve are optimistic that the rise in long-term Treasury yields could put an end to historic interest rate hikes meant to curb inflation, with financial markets now seeing a nearly 90% chance that the US central bank will keep rates unchanged at its next policy meeting on October 31 through November 1.
Markets are increasingly expecting a Fed pause in interest rate hikes, with the chance of a rate increase in November dropping to 15.8%, down from 23.1% a week ago and 38.4% a month ago, as volatile Treasury yields play a major role in shaping market expectations.
Some Federal Reserve officials are optimistic about finding a monetary policy that lowers inflation to their 2% target without causing high unemployment, but there are risks that could push the Fed onto a more familiar path of an economy struggling with rising borrowing costs and waning confidence.
The Federal Reserve is adopting a cautious stance due to uncertainty surrounding the US economy, including risks posed by volatile data and tightening financial markets.
The Federal Reserve officials are uncertain about the U.S. economy's outlook and plan to proceed cautiously in deciding whether to raise interest rates, with some acknowledging the risks of raising rates too high or not enough to curb inflation.
