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Fed Considers Rate Hike Amid Rising Inflation and Energy Costs
Confirmed
In Short: The Federal Reserve is set to raise interest rates, amid concerns over inflation and energy costs, as New Zealand's central bank also considers further hikes.
The Federal Reserve is preparing to raise interest rates, driven by rising inflation and energy costs, with markets heavily expecting a rate hike on Wednesday.
In New Zealand, the Reserve Bank of New Zealand (RBNZ) raised its Official Cash Rate by 0.25 percentage points to 2.75%, signaling that further increases may be necessary.
Inflation remains a primary concern, with the inflation rate excluding vehicle fuels easing to 2.9%, while longer-term inflation expectations remain close to 2%.
Higher energy costs are squeezing household budgets and weighing on domestic spending, leaving policymakers in a delicate position to prevent energy shocks from spreading into broader price pressures.
The situation is complicated by geopolitical tensions, with Russia and Ukraine continuing to disagree on a proposed energy truce, and the US government facing pressure to boost the economy with lower rates.
Bond yields have been rising globally, with the 10-year Treasury yield reaching its highest level since 2007, reflecting worries about inflation and higher borrowing costs.
What's confirmed
- The Federal Reserve is preparing to raise interest rates, driven by rising inflation and energy costs, with markets heavily expecting a rate hike on Wednesday.
- In New Zealand, the Reserve Bank of New Zealand (RBNZ) raised its Official Cash Rate by 0.25 percentage points to 2.75%, signaling that further increases may be necessary.
- Inflation remains a primary concern, with the inflation rate excluding vehicle fuels easing to 2.9%, while longer-term inflation expectations remain close to 2%.
- Higher energy costs are squeezing household budgets and weighing on domestic spending, leaving policymakers in a delicate position to prevent energy shocks from spreading into broader price pressures.
- The situation is complicated by geopolitical tensions, with Russia and Ukraine continuing to disagree on a proposed energy truce, and the US government facing pressure to boost the economy with lower rates.
- Bond yields have been rising globally, with the 10-year Treasury yield reaching its highest level since 2007, reflecting worries about inflation and higher borrowing costs.
What's still developing
- However, the RBNZ is also making clear that the inflation picture is more complicated than the headline number suggests.
- Heading into the event, data showed a rather punchy US August jobs report, which, you will likely recall, triggered a hawkish Fed rate repricing in rates markets.
- This leaves policymakers trying to prevent the energy shock from spreading into wider prices without putting unnecessary pressure on an economy that is still recovering.
- Markets are now heavily expecting the Fed to raise rates on Wednesday, making the decision and the central bank's guidance particularly important for the US dollar.
- Peskov, the Kremlin spokesman, said at a news briefing that, while Russia believed a halt to strikes against energy infrastructure would be “a very good idea,” such a deal would not have much effect on fuel markets, as Mr. Trump had claimed.
- Mr. Trump announced on social media on Monday that both sides had already agreed to the energy truce, adding that the rise in global diesel prices was mostly caused by the Russia-Ukraine war, not by the war in Iran.
- Mr. Peskov said that any easing of fuel markets would not happen without also ensuring the safety of Russian fuel tankers and the lifting of sanctions against Moscow’s energy exports.
- “Only then will the world, the global markets, be saturated, and prices will go down,” Mr. Peskov said.