Data from Thursday (October 13th) in the United States showed that consumer prices unexpectedly rose and exceeded expectations in September, making traders more optimistic that the Federal Reserve will raise interest rates again at the end of this year and have a greater likelihood of maintaining relatively high rates for a longer period next year.
Compared to futures contracts based on Federal Reserve policy rates, the current probability of a rate hike in December is approximately 40%, compared to previous reports showing a probability of approximately 28%. This change is due to the latest report showing that the consumer price index has increased by 3.7% compared to the same period last year, slightly higher than analysts' previous expectations. They had originally estimated an increase of 3.6%.
If interest rates are raised by another 25 basis points, the Federal Reserve's policy interest rate will rise to the range of 5.5% to 5.75%.
Traders currently predict that interest rates will be lowered by approximately one percentage point next year, to 4.6%. Before the latest report was released, the year-end interest rate in futures contracts was 4.5%.
The Federal Reserve adheres to an inflation target of 2%.
Overall, based solely on this report, the FOMC may not feel the need to tighten policy again in November, but it will believe that this report demonstrates the rationality of the policy needing longer to maintain tightening, "said Stuart Cole, Chief Macroeconomist at Equiti Capital. Therefore, the possibility of further interest rate hikes still exists.
A series of recent signals indicating sustained inflation suggest that even if officials repeatedly emphasize the importance of patience, the Federal Reserve should still retain the possibility of raising interest rates once within the year. According to data released by the US Bureau of Labor Statistics on Thursday, the core consumer price index (CPI) excluding food and energy increased by 0.3% last month. Boosted by the rise in energy prices, the overall CPI rose by 0.4%, higher than expected. Economists believe that core CPI is a better indicator of potential inflation. Both of these data are above the Federal Reserve's annual inflation target of 2%. Kathy Bostjancic, Chief Economist of Nationwide Mutual Insurance Co., said, "Inflation data will make the Federal Reserve open to further rate hikes, but it cannot be denied that the market may ultimately complete the task of tightening their currency for them.
Tips:
FOMC is the abbreviation for "Federal Open Market Committee" and is an important part of the Federal Reserve System in the United States. FOMC is responsible for formulating US monetary policy, particularly adjusting short-term interest rates to achieve US monetary policy goals.
FOMC is composed of seven board members of the Federal Reserve System and four bank presidents from 12 regional reserve banks. Every year, FOMC holds multiple regular meetings to discuss economic conditions, inflation expectations, and other economic indicators, and then decides whether to adjust the federal funds rate, which is the interest rate for short-term loans between US banks, based on this information. The adjustment of the federal funds interest rate is very important for affecting the overall economy and financial markets, so FOMC's policy decisions have a broad impact on both the US and global economies.
One of the main goals of FOMC is to maintain price stability, promote maximum employment, and support economic growth. Therefore, it will consider inflation, unemployment rate, and other economic indicators when deciding on interest rate adjustments. The policy decisions of FOMC have a profound impact on the US money supply, credit markets, and financial markets, and therefore have received much attention.
