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US Interest Rate Hike Risk Persists Despite Recent Stability
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In Short: Financial analysts and central bank officials continue to monitor economic indicators, indicating that the risk of a key US interest rate rise persists despite recent market stability.
Financial analysts and central bank officials continue to monitor economic indicators, indicating that the risk of a key US interest rate rise persists despite recent market stability.
The Bank of Japan raised its short-term interest-rate target to 1.25% from 1.00% in a 7-2 vote, aligning with expectations following the European Central Bank and US Federal Reserve's recent tightening measures.
According to the latest reports, the cost of protection against a 200 basis points increase in interest rates over three months reached 132 basis points, its highest level since the banking crisis in March 2023.
The Federal Reserve decided to keep interest rates unchanged on Wednesday, despite growing inflation pressures, as Fed chair Kevin Warsh emphasized the need to deliver future price stability and quash inflation.
The market is now pricing in a 90% probability of a Reserve Bank of Australia rate hike next week, despite economic indicators pointing to an economic slowdown, rising unemployment, and a decelerating real estate market.
Chicago Fed President Austan Goolsbee rejected calls for interest-rate cuts to ease the US government’s debt burden, warning that such a move could fuel inflation and raise borrowing costs.
The S&P 500 and Nasdaq ended sharply higher on Monday, lifted by gains in Advanced Micro Devices and other AI heavyweights, while Treasury yields retreated from recent highs and crude prices tumbled to an 11-day low on speculation about a potential breakthrough in Middle East talks at a UN meeting.
The market pricing for November still shows roughly 41% odds of another 25 basis points rate hike, with central bankers keeping tabs on movements in the yen, which fell to a 40-year low against the dollar in July, prompting a historic joint US-Japanese intervention in foreign exchange markets.
What this adds
The risk of a key US interest rate rise remains even after recent market stability, according to the latest reports from financial analysts and central bank officials.
The market is now pricing in a 90% probability of a Reserve Bank of Australia rate hike next week, despite economic indicators pointing to an economic slowdown and rising unemployment.
Background
The risk of a key US interest rate rise remains, despite recent market stability, as traders and central banks continue to monitor economic indicators.
The Federal Reserve decided to keep interest rates unchanged on Wednesday, despite growing inflation pressures.
What's confirmed
- The Care Quality Commission's annual report, external highlights how a rising share of the care home market is owned by large firms - the five biggest increased their share by 26% in the last two years, driven by interest from US property investors, and now own one in seven homes.
- Demand for short-term hedging instruments to protect against a rise in US 10-year swap rates has increased sharply.
What's still developing
- "That said, that’s about it for the arguments in favor of a rate hike. Sentiment indicators, such as the Purchasing Managers’ Index released yesterday, point to an economic slowdown; the unemployment rate rose this morning from 4.5% to 4.6% - its highest level in nearly five years - and the real estate market has recently decelerated rapidly, with falling prices, particularly in the major markets of Sydney and Melbourne."
- Although May's core CPI rose just 0.2% month-on-month, falling short of market expectations, options market data shows that traders still maintain expectations for a Federal Reserve rate hike this year.
- Despite geopolitical concerns and gold's traditional safe-haven status, it has acted as a liquid asset, easily sold during market volatility.
- Search donors to governors and discover which industries and special interest groups are supporting state leaders.
- That said, no one has captured the market quite like Meta.
- The Bank of Japan (BoJ) raised its short-term interest-rate target to 1.25% from 1.00% in a 7-2 vote, marking another step in the normalisation of monetary policy and widely matching what everyone has been expecting for weeks.
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