US Fed raises interest rates to curb inflation and another hike is on the cards
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hike → raise → cards
The US Federal Reserve's Federal Open Market Committee voted unanimously to lift interest rates by 25 basis points, with policymakers expecting one more hike before the end of the year.
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policymakers → vote → year
US share markets were down overnight on the news while locally the share market is also expected to drop.
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market → expect → news
Look back at the day's financial news and insights from our specialist business reporters as it happened on our blog.
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it → look → blog
Disclaimer: this blog is not intended as investment advice.
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blog → intend → advice
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Key Event
JP Morgan chief economist expects more rate rises globally, but not necessarily in Australia
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economist → choose → Australia
JP Morgan's global head of economic research Bruce Kasman says markets have dramatically shifted from price stable to falling rates across developed markets (DMs) at the start of this year.
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markets → say → year
"Central bankers are now on the move, and markets anticipate them to hike a cumulative 100bp through mid-2027," he writes in a note following the Fed's unanimous rate hike decision.
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he → anticipate → decision
"Each DM central bank we track, except for Norway, is anticipated to deliver a cumulative policy hike of at least 75bp."
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we → track → 75bp
Of course, since the end of last year Australia's Reserve Bank has already hiked by 0.75 of a percentage point, so it's arguably ahead of the game this time (as its officials are keen to remind us).
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officials → hike → us
Kasman says a range of forces beyond the surge in oil prices caused by the Middle East war are contributing to this year's rates pivot.
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range → say → pivot
"Sticky core inflation, alongside the build-up of goods price pressures, has dampened forward-looking optimism and central bank inflation forecasts have flattened," he explains.
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he → dampen → optimism
At the same time, labor markets are now tightening, a material shift from 2024-25, when resilient DM growth was accompanied by rising unemployment rates.
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growth → tighten → rates
"A third pressure point comes from accelerating credit growth and rising asset prices, which suggest central bank neutral rate estimates are low.
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estimates → come → growth
"
Only the first of these apply in Australia, where the jobs market is gradually weakening and the key asset price (houses) is falling quite sharply due to a combination of rising rates and tax changes.
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price → apply → rates
Kasman acknowledges this.
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Kasman → acknowledge → this
"The Taylor rule suggests that no material tightening is needed in Canada, Australia, or the UK.
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tightening → suggest → Canada
The diversity in this guidance contrasts with market projections of synchronized hikes," he argues.
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he → contrast → hikes
The Taylor rule is a widely used economic tool to determine whether interest rates are too low, too high or about right for current economic conditions.
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rates → use → conditions
US: inflation still too high for too long
So what do the pundits make of the US Federal Reserve's decision.
NAB Head of FX Strategy Markets Ray Attrill
"Warsh press conference largely repeats sentiments expressed at Jackson Hole, inflation too high for too long, financial conditions not restrictive, comes across as hawkish."
So what did US Federal Reserve chair Kevin Warsh actually say?
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Warsh → make → what
Here are some of the words from the statement:
"The Committee decided to raise the target range for the federal funds rate by 1/4 percentage pointto 3-3/4to 4 percent, in support of the Federal Reserve's dual mandate.
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Committee → decide → mandate
The Committee is continuing its policy of maintaining ample reserves in the banking system.
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Committee → continue → system
Economic activity is expanding at a solid pace.
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activity → expand → pace
While uncertainty remains elevated owing, in part, to geopolitical developments, domestic spending has been resilient.
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spending → remain → developments
Job gains have kept pace with the workforce, and the unemployment rate has changed little.
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rate → keep → workforce
"Inflation remains elevated.
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Inflation → remain → ?
Today's policy action will support a timelier return to the Committee's 2 percent goal.
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action → support → goal
The Committee will deliver price stability.
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Committee → deliver → stability
US markets fell overnight and the Aussie share market is also tipped to open lower.
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market → fall → ?
The Aporia
