The Federal Reserve & Its Current Rates


The US inflation figures due out next week may offer hints as to whether the Federal Reserve can hold off on raising interest rates at its meeting next month.

After a gain of 5.6% a month earlier, the core consumer price index—which includes food and energy—likely grew by 5.5% in April from a year earlier. The annual advance would indicate that inflation is proving to be persistent and that underlying price pressures have only slightly slowed down.

The core rate has been stuck between 5.5% and 5.7% for the past four months, highlighting how stubborn inflation is. The first of two CPI reports that the Fed’s policymakers will have access to before deciding on interest rates in June is Wednesday’s report.

As was generally anticipated, US central bankers increased their benchmark interest rate on May 3 by a quarter point, but they also gave a hint that they would stop their most ferocious tightening campaign since the 1980s.

The Fed must take recent stress at regional banks and the total impact of its yearlong rate hike effort on the economy into account, even though progress in containing inflation has been gradual. Rate hikes have a lag in the economy.

On May 11, 2023, information on the prices paid to manufacturers will be made public. According to economists, cost pressures will be firmer in April than they were a month ago. The statistics ultimately show that the downward trend in goods prices may be uneven.

While counterparts from Peru to Poland are likely to keep interest rates on quo, the Bank of England may boost rates by a quarter point. The focus will also be on a gathering of the finance ministers from the Group of Seven in Japan.

Based on March’s unexpected increase, which signaled that demand from Asia and Europe has been holding up better than anticipated, the most recent trade data from China are predicted to show an increase year over year in April.

The world’s second-largest economy’s pricing pressures are likely to continue to decline, according to inflation data that will be released later this week.

As Treasurer Jim Chalmers moves to support the Reserve Bank’s efforts to hold inflation in check, Australia may post its first budget surplus in 15 years, enhancing the center-left government’s economic credentials.

According to economists, the government’s fiscal plan released on Tuesday will show a shortfall of A$5 billion ($3.4 billion), or 0.2% of GDP, in the year ending on June 30. However, local media reports that the government will actually post a small surplus thanks to increased export revenue and higher income tax collections as a result of low unemployment.

From debt risks to the status of global financial markets, finance ministers and central bank governors from the richest countries in the world assemble in Japan. The G-7 representatives will gather in Niigata, in northern Japan, from Thursday through Saturday.

Peers in the area may provide a contrast after the European Central Bank indicated its intention to continue tightening following the most recent quarter-point rate hike.

Economists predict that the Bank of England will hike interest rates by that amount on Thursday, but they disagree on what action might come next, with the majority predicting a pause.

The vulnerability of the British economy following what may well amount to 440 basis points of tightening by May 12th may be highlighted by data that are expected to show a slow rate of growth in the first quarter.

However, investors are counting on further rate increases because UK inflation is still in the double digits, significantly higher than in the euro zone, and the labor market is tight. Governor Andrew Bailey’s comments and this month’s BOE estimates will be closely examined for hints on the future.

Numbers released on Wednesday may indicate if Hungary’s fastest-growing inflation rate has for the first time decreased significantly, perhaps opening the door for a rate cut.

Inflation in Norway may have slowed and the country’s economy expanded by just 0.1% in the first quarter, according to data. Additionally, the minutes of the latest Riksbank decision, which affected Sweden’s economy by raising interest rates by half a point, will be made public.

Fitch Ratings will update Italy’s credit rating on Friday, one week before Moody’s Investors Service decides whether the nation should maintain its investment-grade status. The current rating from Fitch is one notch higher than that of its rival.

In the south, data released that day may indicate that Saudi Arabia’s brisk economic growth is beginning to wane; 4.1% growth is predicted for the first quarter.

Brazil’s central bank released the minutes from its meeting on May 2-3, where board members stated that there was not much opportunity for easing and that the key rate should remain at 13.75 percent. According to economists surveyed by the central bank, inflation would not return to target before 2027, even with restrictive policies.

In the upcoming week, Banco Central de Chile and Banco Central de Reserva del Peru will meet; neither has made any signal that they are prepared to start easing due to the lack of inflation. Expect Chile’s and Peru’s key rates to remain at 11.25% and 7.75%, respectively. Before making its rate decision on May 18 in Mexico, Banxico takes one more look at inflation. Readings are predicted to be lower, but a stubborn set of core prints could support a hike for the 16th consecutive time.

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