The US Won’t Tame Inflation until Rates Hit 5pc

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The US Won’t Tame Inflation until Rates Hit 5pc

australian financial review2022-09-20

US interest rates will need to go higher and stay there longer with persistent inflation showing no evidence of abating despite the rapid monetary tightening, prompting ANZ to upgrade its peak Federal...

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·2022-09-20
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That is 1 percentage point, or 100 basis points, higher, and almost six months later, than its previous Fed rates forecast.Head of G3 economists Brian Martin, and senior international economist Tom Kenny, cited persistent core inflation, and particularly core services inflation, which they describe as “sticky” and will take more time to moderate.They add that significantly higher rates for longer are needed to achieve the softer labour market required to get inflation back to the 2 per cent Fed target.“The nuts and bolts of the inflation data make for uncomfortable reading. Whilst there is evidence that headline inflation may be rolling over, this is not so for core measures,” they said.“A big worry is that core services inflation is on an extended run of high monthly readings. On an annual basis, this measure reached a cyclical high of 6.8 per cent year-on-year last month, its highest level in 40 years.”Mr Martin and Mr Kenny have also taken cues from a hardening in guidance sincechairman Jerome Powell spoke at the Jackson Hole symposium in Augustsaying the Fed is “determined not to make a mistake of under-tightening and allowing elevated inflation to become entrenched”.“The Fed needs to raise the real Federal funds rate considerably beyond current levels for policy to become restrictive enough to bear down on inflation,” they said. “We think that if a policy error is made, it will be on the side of overtightening.”1 per cent on the tableANZ’s forecast comes ahead ofa big week for global rateswith at least 10 central banks due to meet to decide policy settings.Most watched will be the Fed, which isexpected to push through its third consecutive 0.75 percentage point increase, taking the Fed funds rate to a 3 per cent to 3.25 per cent range.Markets are not ruling out a blockbuster rise, pricing in a 20 per cent chance for a 1 percentage point increase.The Bank of England, the Bank of Japan and the central banks of Norway and Sweden are in action in a holiday-impacted week. The BoE is expected to lift its benchmark rate by 0.5 percentage points, with a risk of 0.75 percentage point move, after postponing its decision in the wake ofQueen Elizabeth II’s death.ANZ believes a 0.75 percentage point increase is the most likely outcome for the Fed.BetaShares chief economist David Bassanese concurred, but isn’t ruling out a larger surprise.“The equity market has managed to rally on each day of Fed policy meetings so far this year – on relief that the outcome was not a lot worse than the already extremely bad outcome expected,” he said.“It’s for this reason there is a risk the Fed might deliberately try to surprise this week – with a 1 per cent hike without any warning.”ANZ urged the BoE to push through a minimum of a 0.75 percentage point increase, although 1 percentage point would be “appropriate”.“The BoE must get ahead of the inflation problem,” it said.ANZ’s 5 per cent terminal rate is above current market forecasts, but it is not alone in being hawkish. In aninterview withTheAustralian Financial Review, UBS Asset Management’s Barry Gill wouldn’t rule out interest rates above 5 per cent to get a grip on surging inflation.Former US Treasury Secretary Larry Summers also says the Fed may have to get to 5 per cent.“I think we’re more likely to end up above 4.5 per cent than we are to end up below 4.5 per cent. And it certainly wouldn’t surprise me if that rate has to get above 5 per cent,” Mr Summers toldBloombergover the weekend.Market-implied rate expectations increased over the past week. Swap rates now peak at 4.5 per cent in March 2023, a full percentage point higher than was expected after the Fed’s last meeting in July, according to Bloomberg.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[{"id":9910490265,"gmtCreate":1663655437057,"gmtModify":1676537309851,"author":{"id":"3564105303063302","authorId":"3564105303063302","name":"ALi_BaBa","avatar":"https://static.tigerbbs.com/d89722c800111c9c885624fce940701f","vip":1,"crmLevel":6,"crmLevelSwitch":0},"htmlText":"Like&nbsp;","listText":"Like&nbsp;","text":"Like","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9910490265","repostId":1115944470,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9910407833,"gmtCreate":1663654901922,"gmtModify":1676537309745,"author":{"id":"3582285682937778","authorId":"3582285682937778","name":"neoh","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":2,"crmLevelSwitch":0},"htmlText":"Like","listText":"Like","text":"Like","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9910407833","repostId":1115944470,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9910404187,"gmtCreate":1663654615549,"gmtModify":1676537309704,"author":{"id":"3574547619690492","authorId":"3574547619690492","name":"UTOtrader","avatar":"https://static.tigerbbs.com/82be6befb29ac8516e463638d3f659d5","vip":1,"crmLevel":4,"crmLevelSwitch":0},"htmlText":"T","listText":"T","text":"T","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9910404187","repostId":1115944470,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9910574744,"gmtCreate":1663653016088,"gmtModify":1676537309369,"author":{"id":"3574906731000207","authorId":"3574906731000207","name":"SSVC","avatar":"https://static.tigerbbs.com/545a5ea462ff4ac7cc100bd3d8d97f72","vip":1,"crmLevel":3,"crmLevelSwitch":0},"htmlText":"K","listText":"K","text":"K","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9910574744","repostId":1115944470,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"hasMoreComments":true,"newsSizeData":{"likeSize":41,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false}}