Will key interest rates in the USA remain stable for the time being?
(Photo: Bloomberg)
Denver Rising prices for gasoline and airline tickets caused inflation in the USA to rise again. In August The US inflation rate was 3.7 percent compared to the previous year – even higher than analysts had expected. In July the value was 3.2 percent. Core inflation, which excludes volatile energy and food prices, fell from 4.7 to 4.3 percent.
This brings the US Federal Reserve (Fed) back into focus. Economists expect the Fed to keep interest rates stable at its meeting on September 20th. The monetary authorities had raised interest rates at eleven of the last twelve meetings. They are now in a range of 5.25 to 5.5 percent – the highest level in 22 years. Monetary policymakers are placing greater emphasis on core inflation, which could strengthen the Fed’s stance, economists believe.
Price drivers last month were primarily rising energy prices, which was also noticeable at gas stations. Gasoline prices rose 6.6 percent in August compared to the previous month, according to data from the US Automobile Association (AAA). Such a significant increase “is bitter because all consumers feel it,” says Tom Lee from the analysis house Fundstrat.
Gasoline prices were responsible for a good half of the price increases. Airline tickets also became more expensive again. On a monthly basis, inflation rose by 0.6 percent and core inflation by 0.3 percent. However, the costs of living space, also an important element in calculating the inflation rate, rose only moderately.
Uncertainty about further interest rate developments
At the major central bank meeting in Jackson Hole at the end of August, Fed Chairman Jerome Powell remained open about whether he would raise interest rates again in the winter. Market participants hope that the end of the interest rate hikes has come. However, this is not certain, as capital market expert Mohamed El-Erian points out. He assumes that the Fed will keep interest rates constant next week. But Wednesday’s data “leads to some uncertainty ahead of the next meeting on November 1st,” El-Erian said.
The Fed chief has so far remained open about whether he will raise interest rates again in the winter.
(Photo: Reuters)
He assumes that inflation in the USA could rise further in the coming months, driven, among other things, by further rising prices for oil and some food products. Therefore, it could be that the inflation rate “stays at three to four percent and is therefore permanently above the Fed’s inflation target of two percent.”
Delicate decision
The Fed would then be faced with a particularly delicate decision: “Either it tolerates higher inflation or it pursues the two percent target with further interest rate increases – thereby increasing the risk of a recession and new turbulence on the financial markets,” said El-Erian.
Many monetary authorities have also recently adopted a more cautious tone. For a long time they agreed that they would rather raise interest rates too much than too little in the fight against high inflation.
But now that the inflation rate has fallen significantly from 9.1 percent last June, they are changing their stance. “In today’s complex economic environment, returning inflation to 2 percent will require a carefully calibrated approach, not endless buckets of cold water,” said Lorie Logan, head of the regional Fed in Dallas.
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