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Interest Rates Set to Rise Again as Inflation Fears Persist
Confirmed
In Short: Inflation concerns are prompting central banks worldwide to consider raising interest rates, with the US Federal Reserve expected to make a decision next week.
Interest rates could rise again across the world, driven by inflation fears and the ongoing Middle East conflict, according to reports. The European Central Bank recently raised its rates to 2.5%, citing concerns over inflation remaining well above its 2% target.
The US Federal Reserve, which has held rates steady for five meetings in a row, is set to make its decision next week. Newly appointed Fed Chair Kevin Warsh has hinted that the central bank's focus should be on slowing price rises, fueling expectations of an increase.
Other central banks are also considering similar moves. The Bank of Japan (BoJ) has signaled a potential rate hike in September, aiming to address rising prices amid higher crude oil prices and a weak yen. Traders are now pricing in about a 60% chance of an interest rate hike at the US central bank’s policy meeting, according to the CME FedWatch Tool.
However, the decision is not without debate. Some economists, like Grace Zwemmer from Oxford Economics, expect rates to remain unchanged. Waller, a Fed official, noted that recent data suggest some signs of disinflation, but the final decision could hinge on Friday’s Consumer Price Index reading.
Despite the inflation concerns, the labor market in the US remains stable, with core inflation expected to rise just 0.2% month-over-month. However, the Fed’s decision could still be influenced by Friday’s report, as Waller noted that disinflationary signals over the next two weeks could lead to a decision to keep rates unchanged.
What's confirmed
- Interest rates could rise again across the world, driven by inflation fears and the ongoing Middle East conflict, according to reports. The European Central Bank recently raised its rates to 2.5%, citing concerns over inflation remaining well above its 2% target.
- The US Federal Reserve, which has held rates steady for five meetings in a row, is set to make its decision next week. Newly appointed Fed Chair Kevin Warsh has hinted that the central bank's focus should be on slowing price rises, fueling expectations of an increase.
- Other central banks are also considering similar moves. The Bank of Japan (BoJ) has signaled a potential rate hike in September, aiming to address rising prices amid higher crude oil prices and a weak yen. Traders are now pricing in about a 60% chance of an interest rate hike at the US central bank’s policy meeting, according to the CME FedWatch Tool.
- However, the decision is not without debate. Some economists, like Grace Zwemmer from Oxford Economics, expect rates to remain unchanged. Waller, a Fed official, noted that recent data suggest some signs of disinflation, but the final decision could hinge on Friday’s Consumer Price Index reading.
- Despite the inflation concerns, the labor market in the US remains stable, with core inflation expected to rise just 0.2% month-over-month. However, the Fed’s decision could still be influenced by Friday’s report, as Waller noted that disinflationary signals over the next two weeks could lead to a decision to keep rates unchanged.
What's still developing
- Oil, gas and borrowing costs surge as fears over Middle East escalate Fed has 'work to do' if price rises don't ease for Americans, Warsh says Borrowers expecting mortgage rates to drop have hopes dashed The US-Iran war and resulting higher global oil and gas prices are stoking the inflation fears.
- Shipments through the Strait of Hormuz waterway, one of the world's busiest oil and gas routes, have been restricted due to the war and a barrel of Brent crude is now around $105 (£78), approaching levels last seen at the outbreak of the conflict.
- The BoJ decision in 2024 to gradually abandon the ultra-loose policy, coupled with interest-rate cuts in other major central banks, is narrowing this differential.