Live: RBA more likely to raise rates as US Federal Reserve lifts to 4pc
The US Federal Reserve's Federal Open Market Committee voted unanimously to lift interest rates by 25 basis points, with policymakers expecting one more hike before the end of the year.
US share markets were down overnight on the news while locally the share market is also expected to drop.
Look back at the day's financial news and insights from our specialist business reporters as it happened on our blog.
Disclaimer: this blog is not intended as investment advice.
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Market Snapshot
By Alison Branley
By Alison Branley
- Alison Branley
- ASX 200: +0.28% to 8,696 points (close)
- Australian dollar: +0.01% at 70.87 US cents
- Wall Street: Dow Jones (-1.21%), S&P 500 (-0.45%), Nasdaq Composite (-0.012%)
- Europe: DAX (+0.53%%), FTSE (+0.28%)
- Asia: KOSPI (+1.37%), Nikkei (-0.69%), Hang Seng (+.19%)
- Spot gold: -0.71% to $US4,262/ounce
- Oil (Brent): -2.88% to $US105.62/barrel
- Iron ore: +0.32% at $US97/tonne
- Bitcoin: -0.11% to $US76,047
Prices current at around 7:30am AEST
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Key Event
JP Morgan chief economist expects more rate rises globally, but not necessarily in Australia
By Michael Janda
By Michael Janda
JP Morgan's global head of economic research Bruce Kasman says markets have dramatically shifted from price stable to falling rates across developed markets (DMs) at the start of this year.
"Central bankers are now on the move, and markets anticipate them to hike a cumulative 100bp through mid-2027," he writes in a note following the Fed's unanimous rate hike decision.
"Each DM central bank we track, except for Norway, is anticipated to deliver a cumulative policy hike of at least 75bp."
Of course, since the end of last year Australia's Reserve Bank has already hiked by 0.75 of a percentage point, so it's arguably ahead of the game this time (as its officials are keen to remind us).
Kasman says a range of forces beyond the surge in oil prices caused by the Middle East war are contributing to this year's rates pivot.
"Sticky core inflation, alongside the build-up of goods price pressures, has dampened forward-looking optimism and central bank inflation forecasts have flattened," he explains.
"At the same time, labor markets are now tightening, a material shift from 2024-25, when resilient DM growth was accompanied by rising unemployment rates.
"A third pressure point comes from accelerating credit growth and rising asset prices, which suggest central bank neutral rate estimates are low."
Only the first of these apply in Australia, where the jobs market is gradually weakening and the key asset price (houses) is falling quite sharply due to a combination of rising rates and tax changes.
Kasman acknowledges this.
"The Taylor rule suggests that no material tightening is needed in Canada, Australia, or the UK. The diversity in this guidance contrasts with market projections of synchronized hikes," he argues.
The Taylor rule is a widely used economic tool to determine whether interest rates are too low, too high or about right for current economic conditions.
US: inflation still too high for too long
By Alison Branley
By Alison Branley
So what do the pundits make of the US Federal Reserve's decision.
NAB Head of FX Strategy Markets Ray Attrill
"Warsh press conference largely repeats sentiments expressed at Jackson Hole, inflation too high for too long, financial conditions not restrictive, comes across as hawkish."
So what did US Federal Reserve chair Kevin Warsh actually say? Here are some of the words from the statement:
"The Committee decided to raise the target range for the federal funds rate by 1/4 percentage pointto 3-3/4to 4 percent, in support of the Federal Reserve's dual mandate. The Committee is continuing its policy of maintaining ample reserves in the banking system.
"Economic activity is expanding at a solid pace. While uncertainty remains elevated owing, in part, to geopolitical developments, domestic spending has been resilient. Productivity growth is strong, and capital investment is robust. Job gains have kept pace with the workforce, and the unemployment rate has changed little.
"Inflation remains elevated. Today's policy action will support a timelier return to the Committee's 2 percent goal. The Committee will deliver price stability."
Morning
By Alison Branley
By Alison Branley
Morning all,
Lots of action to watch on the blog today with the US Federal Reserve decision to raise interest rates by 25 basis points.
US markets fell overnight and the Aussie share market is also tipped to open lower.
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