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Fed Faces Pressure to Hike Rates Amid Rising Inflation Concerns
Confirmed
In Short: The European Central Bank has raised interest rates in response to inflation fears, and the US Federal Reserve is set to make a decision on Wednesday, with many expecting a rate hike due to persistently high inflation and geopolitical tensions.
Meanwhile, surging tanker rates and rising leasing costs are adding another layer of inflation pressure for global central banks. "Supertanker rates on the Baltic Exchange's benchmark Middle East-to-China shipping route have surged to a staggering $800,000 a day," reported Crude Oil Prices Today. Morgan Stanley analysts predict that two-year leasing rates could surge another 20% to 30%.
In India, inflation is expected to accelerate to 4.9% year-on-year, with food and energy costs driving a gradual broadening of price pressures. "Inflation staying above 5% in the second half of the fiscal year underscores a tighter policy bias," said Taimur Baig and Chang Wei Liang of DBS Group Research. However, the US Dollar preserves overnight gains ahead of the latest US consumer inflation data, limiting losses for the Aussie.
What's confirmed
- Meanwhile, surging tanker rates and rising leasing costs are adding another layer of inflation pressure for global central banks. "Supertanker rates on the Baltic Exchange's benchmark Middle East-to-China shipping route have surged to a staggering $800,000 a day," reported Crude Oil Prices Today. Morgan Stanley analysts predict that two-year leasing rates could surge another 20% to 30%.
- In India, inflation is expected to accelerate to 4.9% year-on-year, with food and energy costs driving a gradual broadening of price pressures. "Inflation staying above 5% in the second half of the fiscal year underscores a tighter policy bias," said Taimur Baig and Chang Wei Liang of DBS Group Research. However, the US Dollar preserves overnight gains ahead of the latest US consumer inflation data, limiting losses for the Aussie.
What's still developing
- Citing the Middle East conflict and warning inflation was "set to remain well above" its 2% target for some time, the European Central Bank raised interest rates this week to 2.5%.
- The US-Iran war and resulting higher global oil and gas prices are stoking the inflation fears.
- Up first on Wednesday is the US Federal Reserve, which has held rates steady between 3.5% and 3.75% for five meetings in a row.
- But above target inflation at 3.4%, a strong jobs market and President Donald Trump saying he does not think oil prices will come down until the Iran war ends, which he expects to happen after November's elections, has led many on Wall Street to bet on a rate hike this month.
- Newly-appointed Fed Chair Kevin Warsh has remained tight-lipped on where he sees interest rates going, but his repeated comments that the central bank's focus should be on slowing price rises has further fuelled expectations of an increase.
- Views differ somewhat, with Grace Zwemmer, US economist at Oxford Economics, expecting rates to remain unchanged, but almost universally a rate cut appears to be off the table.
- However, hawkish RBA expectations limited losses for the Aussie as USD bulls now await the release of the US consumer inflation figures before placing fresh bets.
- Therefore, the precious metal reverses Thursday’s decline amid a marginal retracement in the US Dollar after the release of August inflation print.