US Fed Rate Hike: What to expect from FOMC meeting next week?

The million-dollar question remains: will the US Federal Reserve raise interest rates again in 2023? Following ten consecutive rate increases and a pause in June, the Federal Reserve hiked rates by 25 basis points in July, bringing the federal funds rate to a range of 5.25% to 5.50%. The decision to pause or raise interest rates is heavily influenced by US CPI data, notably core inflation figures.

The recently released August CPI data does not provide much hope for the Fed and markets. The Consumer Price Index (CPI) in the US jumped 3.7% year on year in August, up from the 3.2% increase recorded in July. The Core CPI figure was 4.3% in the same period, down from a 4.7% growth in July.

Amit Goel, Co-Founder & Chief Global Strategist, Pace 360 says, “The US headline CPI for the month of August came in at 0.63% slightly higher than consensus expectations. Most of this increase happened because of Energy prices and Transportation.

On a broad-based basis, this is a favorable report as many categories like health insurance, apparel, personal goods and computer accessories registered a negative inflation in August.

The increase in transportation costs was mostly because of a rise in motor insurance costs and airfares which don’t appear sustainable. This report clearly shows that once the effect of one-off items gets neutralized inflation will come down over the next few months.

This is great news for global and Indian equities and for most other asset classes which have been shackled by the inflation fears. We see an all-asset class rally over the next few weeks.”

The Federal Reserve will hold interest rates steady in September, before hiking them again next time, predicts Nigel Green of deVere Group, CEO and founder of one of the world’s largest independent financial advisory, asset management and fintech organizations.

Green says: “Inflation heated up again last month in the world’s largest economy, driven mainly by rising oil costs. The core measure, which strips away volatile food and energy prices, cooled on an annual basis.

This latest US CPI data is unlikely to move the needle on the Fed’s highly anticipated move to hold rates steady at their meeting next week on September 19-20 – which has already been priced-in by financial markets. But the uptick in inflation gives the US central bank extra reason to be hawkish moving forward. As such, we also expect the Fed will start to prepare the market for a rate increase at its November meeting.”

Chintan Mehta, CEO, Abans Holdings says, “The CPI inflation reading for the month of August showed a strong headline inflation figure primarily driven by surging oil prices, while the core inflation rate slowed as anticipated. Despite this, the outlook for the Federal Reserve’s upcoming rate decision next week remains largely unchanged.

Gold and the US treasury yields have stabilized amid the mixed cues. European Central Bank has projected that the Eurozone will remain above 3% inflation, thereby strengthening the case for a tenth consecutive interest rate hike by the European Central Bank.

Today, the focus remains on US reports on PPI, Retail sales and the weekly jobless claims. The markets will also be taking cues from ECB’s policy rate decision, and the following press conference.”