• Current US inflation data caused uncertainty
    • Nomura expects significant rate hike by the Fed
    • Interest rate decision on Wednesday

    The latest inflation figures from the USA had caused disillusionment: Contrary to expectations, inflationary pressure in the country eased only slightly, the annual inflation rate was 8.3 percent after 8.5 percent in the previous month. Economists had previously expected inflation to fall more sharply, expecting a lower rate of 8.1 percent.

    Economic experts and investors were particularly disappointed by the development of the core rate. Core consumer prices (excluding energy and food) rose by 0.6 percent on a monthly basis and by 6.3 (5.9) percent on a yearly basis. The economists surveyed had expected rates of 0.3 and 6.0 percent.

    This development means additional pressure for the US Federal Reserve. Months ago, the US monetary authorities initiated an interest rate turnaround to combat inflation and raised the key interest rate for the USA several times – so far, however, apparently without the hoped-for resounding success on the inflation front.

    Is the mega rate hike coming now?

    Against this background, the upcoming meeting of the Federal Open Market Committee on Wednesday is eagerly awaited. Market observers and experts unanimously assume that the US Federal Reserve will not take a break in its tightening of monetary policy and will raise the key interest rate again.

    Analysts from Nomura even expect that the central bankers could decide on the largest rate hike in around 40 years. In a research note from the investment bank, quoted by Reuters, economists predict that the key interest rate could be raised by a full percentage point at the upcoming meeting. With this assessment, the experts referred to further inflationary risks. In addition, the analysts raised their forecast for the key interest rate by 50 basis points until February 2023 and now expect a value of 4.50 to 4.75 percent.

    “For some time, we have pointed to the build-up of a wage-price spiral and increasingly unanchored inflation expectations as factors that could keep inflation elevated for longer and require a stronger Fed response,” Reuters quoted the report as saying. “Given the most recent data, we believe these risks are beginning to materialize through higher measured inflation across a broad range of goods and services.”

    Just four weeks ago, the head of the St. Louis branch of the Fed, James Bullard, had announced a rate hike of 0.75 percentage points for the September central bank meeting. Before the latest US inflation data was published, the market had also assumed that interest rates would be of the same magnitude. It will be announced on Wednesday evening whether the central bankers will bring themselves to raise interest rates more significantly in view of the current developments on the consumer price front.

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