{"id":3482,"date":"2023-09-21T09:15:06","date_gmt":"2023-09-21T08:15:06","guid":{"rendered":"https:\/\/hcfx.sofyma.com\/?p=3482"},"modified":"2023-09-21T09:20:42","modified_gmt":"2023-09-21T08:20:42","slug":"the-feds-hawkish-hold","status":"publish","type":"post","link":"https:\/\/hamiltoncourtfx.com\/it\/the-feds-hawkish-hold\/","title":{"rendered":"The Fed\u2019s Hawkish Hold"},"content":{"rendered":"
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Yesterday evening, while the Federal Reserve met market expectations in holding rates, policy makers signalled support for the possibility of another hike this year. With the Fed maintaining their benchmark policy target rate at 5.25-5.5% (its highest level in 22 years), hawkish signals also pervaded global financial markets given indications that there would be less rate cuts in 2024. Indeed, according to the release of the Fed\u2019s Dot Plot, projections indicate the likelihood of another hike this year ahead of two cuts in 2024.<\/p>\n

Notwithstanding how US inflation has cooled to 3.7%, Powell maintained that \u201cthe process of getting inflation sustainably down to 2% has a long way to go\u201d.<\/p>\n

Powell further noted that US economy has been \u201cfar stronger\u201d than expected with the Fed upwardly revising their growth expectations to 2.1% over 2023. This was a marked increase<\/p>\n <\/div>\n

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from their June projections of just 1% and shows how the US economy has remained resilient in light of monetary conditions. Additionally, though the US labour market has showed some signs of slowing, it also has remained resilient and as such the Fed have downwardly revised unemployment expectations from 4.1% to 3.8% this year and 4.1% from 4.5% next year 2024. Accordingly, these trends suggested that the Fed may see space for further monetary tightening or take the view that a terminal rate could be held for longer. Focus now turns to US PMIs released tomorrow to gain further insight into the health of the world\u2019s largest economy.<\/p>\n <\/div>\n <\/div>\n <\/div>\n<\/div>\n\n

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All Eyes on Threadneedle Street<\/h2>\n <\/div>\n
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At 12 noon this afternoon, attention will turn to Threadneedle Street for the Bank of England\u2019s latest interest rate decision and monetary policy summary. Given yesterday\u2019s softer-than-expected inflation print (which saw headline CPI slow from 6.8% to 6.7% against expectations of 7.1%), markets downwardly revised their conviction of the BoE raising rates 25bps. For instance, at the start of the week, money markets were pricing in around an 80% probability of a hike, though following the miss on inflation, this has been pushed lower with around 50% now being priced in. Hence, while inflation remains well above the BoE\u2019s target, convictions that Threadneedle Street may hold have continued to gain traction, not least because of some of the dovish undertones signalled at the last meeting.<\/p>\n

During the BoE\u2019s Policy Meeting on 3rd August, the BoE met expectations by raising rates 25bps to bring the benchmark policy rate to 5.25%. this marked the 14th consecutive rate hike and brings borrowing rates to fresh 2008 highs. Despite earlier projections pricing in a higher prospect of a 50bps hike, the BoE were ultimately more dovish with one policy member even voting to keep rates unchanged. Here, the Bank\u2019s monetary policy report cited their view that \u201cthe risks of overtightening had continued to build, increasing the likelihood of output losses and volatility that would require sharper reversals of policy\u201d. Moreover, while Bailey suggested that further tightening would likely be needed, there were some dovish undertones to his press conference, evidenced when he stated that there was \u201cmore than one path\u201d to cool inflation, insinuating that dampened demand, low wage growth or tighter fiscal conditions could naturally reduce inflationary pressures. If last month\u2019s wage growth figures were anything to go by however, it is apparent that inflationary pressures from the labour market will continue to cause a headache for policymakers.<\/p>\n

Hence, given that brining inflation down to the 2% target continues to remain the Bank\u2019s primary goal, notwithstanding yesterday\u2019s miss on inflation, markets seemingly hold the view that policy makers will still conduct another 25bps hike this year. With markets pricing in a 50\/50 split between whether the BoE will pause or hike today, all eyes are on Threadneedle Street.<\/p>\n <\/div>\n <\/div>\n <\/div>\n<\/div>\n\n

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Long-Term Sickness in the Workforce<\/h2>\n <\/div>\n
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The latest ONS labour market data released last week indicated that there are some 2.6m people in the UK who are economically active due to long-term sickness. This is a marked increase from the pre-pandemic days when figures were not much over 2.1m and represents a major challenge for households and The Treasury alike. Indeed, with long-term sickness levels now at record highs, according to the ONS this has added some 0.6% of GDP to the governments annual borrowing given the increase in welfare spending and the tax receipts forgone. Commenting on the matter, the Institute for Public Policy Research (IPPR) stated that the impact of the trend represents a \u201cserious fiscal threat\u201d.<\/span><\/p>\n <\/div>\n <\/div>\n <\/div>\n<\/div>","protected":false},"excerpt":{"rendered":"

Possibility for another Fed rate hike, today’s Bank of England interest rate decision, and a look at ONS labour market data.<\/p>","protected":false},"author":15,"featured_media":1457,"comment_status":"open","ping_status":"open","sticky":true,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"rp-language":[16],"class_list":["post-3482","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-morning-updates","rp-language-en_gb"],"_links":{"self":[{"href":"https:\/\/hamiltoncourtfx.com\/it\/wp-json\/wp\/v2\/posts\/3482","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/hamiltoncourtfx.com\/it\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/hamiltoncourtfx.com\/it\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/hamiltoncourtfx.com\/it\/wp-json\/wp\/v2\/users\/15"}],"replies":[{"embeddable":true,"href":"https:\/\/hamiltoncourtfx.com\/it\/wp-json\/wp\/v2\/comments?post=3482"}],"version-history":[{"count":11,"href":"https:\/\/hamiltoncourtfx.com\/it\/wp-json\/wp\/v2\/posts\/3482\/revisions"}],"predecessor-version":[{"id":3493,"href":"https:\/\/hamiltoncourtfx.com\/it\/wp-json\/wp\/v2\/posts\/3482\/revisions\/3493"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/hamiltoncourtfx.com\/it\/wp-json\/wp\/v2\/media\/1457"}],"wp:attachment":[{"href":"https:\/\/hamiltoncourtfx.com\/it\/wp-json\/wp\/v2\/media?parent=3482"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/hamiltoncourtfx.com\/it\/wp-json\/wp\/v2\/categories?post=3482"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/hamiltoncourtfx.com\/it\/wp-json\/wp\/v2\/tags?post=3482"},{"taxonomy":"rp-language","embeddable":true,"href":"https:\/\/hamiltoncourtfx.com\/it\/wp-json\/wp\/v2\/rp-language?post=3482"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}