After pausing last month, the US Federal Reserve is widely expected to hike interest rates again on Wednesday, adopting its most restrictive monetary stance for 22 years despite recent signs of slowing inflation.
After 10 consecutive hikes in just over a year, the Fed halted its aggressive campaign of monetary tightening last month to give policymakers more time to assess the health of the US economy, and the impact of recent banking stresses on lending conditions.
In the weeks since, positive upgrades to economic growth and cooler inflation data have reinforced the likelihood that the Fed’s rate-setting Federal Open Market Committee (FOMC) will vote for a quarter-percentage-point hike on July 25 and 26.
Photo: Reuters
This would raise the federal funds rate to a range between 5.25 and 5.5 percent — its highest level since 2001.
“If I had to bet, I would bet they would raise the Fed funds rate 25 basis points at the next meeting,” Peterson Institute for International Economics senior fellow Joseph Gagnon said.
“The cooling of the economy is only happening slowly,” Bank of America Corp chief US economist Michael Gapen wrote in a recent investors’ note.
“We think most committee members believe further rebalancing of supply and demand is needed to ensure disinflation will continue,” he added, explaining why he expects another hike on Wednesday.
Futures traders now assign a probability of more than 99 percent that the Fed will hike its base rate by 25 basis points at its next meeting, according to CME Group Inc.
At its meeting last month, Fed officials indicated that they expect two additional quarter-percentage-point hikes would be needed this year to tackle inflation.
With the first interest rate hike widely expected on Wednesday, analysts have turned their attention to what the Fed does next. Some economists predict another rate hike as soon as the Fed’s next rate meeting in September, while others think it could hold rates steady once more.
“My feeling is that, although they’re going to move slowly, 25 basis points a meeting or even every other meeting, I don’t think they’re going to stop,” Gagnon said.
Due to the uncertainty about September, Fed Chair Jerome Powell’s press conference after the rate decision will be closely scrutinized for hints at what the US central bank might do next.
“In the press conference, we look for Chair Powell to provide more clarity on what markers the Committee would need to see to be comfortable moving into an extended hold,” Morgan Stanley economists wrote in a recent note to clients.
While the European Central Bank is also expected to raise interest rates by 25 basis points in the coming week, the greater focus would be on signaling from policy makers on whether more hikes are likely — or if they plan an extended pause.
The Bank of Japan remains the outlier, with more than 80 percent of analysts polled expecting Governor Kazuo Ueda to continue pumping support into the world’s No. 3 economy even as inflation remains above their 2 percent target.
Additional reporting by Bloomberg
PATENTS: MediaTek Inc said it would not comment on ongoing legal cases, but does not expect the legal action by Huawei to affect its business operations Smartphone integrated chips designer MediaTek Inc (聯發科) on Friday said that a lawsuit filed by Chinese smartphone brand Huawei Technologies Co (華為) over alleged patent infringements would have little impact on its operations. In an announcement posted on the Taiwan Stock Exchange, MediaTek said that it would not comment on an ongoing legal case. However, the company said that Huawei’s legal action would have little impact on its operations. MediaTek’s statement came after China-based PRIP Research said on Thursday that Huawei filed a lawsuit with a Chinese district court claiming that MediaTek infringed on its patents. The infringement mentioned in the lawsuit likely involved
Taipei is today suspending work, classes and its US$2.4 trillion stock market as Typhoon Gaemi approaches Taiwan with strong winds and heavy rain. The nation is not conducting securities, currency or fixed income trading, statements from its stock and currency exchanges said. Authorities had yesterday issued a warning that the storm could affect people on land and canceled some ship crossings and domestic flights. Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) expects its local chipmaking fabs to maintain normal production, the company said in an e-mailed statement. The main chipmaker for Apple Inc and Nvidia Corp said it has activated routine typhoon alert
GROWTH: TSMC increased its projected revenue growth for this year to more than 25 percent, citing stronger-than-expected demand for AI devices and smartphones The Taiwan Institute of Economic Research (TIER, 台灣經濟研究院) yesterday raised its forecast for Taiwan’s GDP growth this year from 3.29 percent to 3.85 percent, as exports and private investment recovered faster than it predicted three months ago. The Taipei-based think tank also expects that Taiwan would see a 8.19 percent increase in exports this year, better than the 7.55 percent it projected in April, as US technology giants spent more money on artificial intelligence (AI) infrastructure and development. “There will be more AI servers going forward, but it remains to be seen if the momentum would extend to personal computers, smartphones and
Catastrophic computer outages caused by a software update from one company have once again exposed the dangers of global technological dependence on a handful of players, experts said on Friday. A flawed update sent out by the little-known security firm CrowdStrike Holdings Inc brought airlines, TV stations and myriad other aspects of daily life to a standstill. The outages affected companies or individuals that use CrowdStrike on the Microsoft Inc’s Windows platform. When they applied the update, the incompatible software crashed computers into a frozen state known as the “blue screen of death.” “Today CrowdStrike has become a household name, but not in