US Federal Reserve makes interest rate decision
In August, annualized US CPI held at 3.4 per cent, well above the Fed’s two per cent target. Much of that inflation, however, is the result of high energy prices exacerbated by conflict in the Middle East. Core CPI, which ignores food and energy costs, was more reasonable at 2.4 per cent. The personal consumption expenditures price index, which the Fed tends to prefer, was as high as 3.7 per cent in July, which drove bond markets to begin pricing in this hike.
US GDP growth and unemployment data has otherwise been relatively strong in the United States, as the release highlights.
“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,” the release reads.
The US President has made it clear that he wants interest rates to come down. The decision potentially sets up new Fed Chair Kevin Warsh for conflict with President Trump, who had heavily criticized Warsh’s predecessor, Jerome Powell, for holding interest rates steady through 2025 and early 2026.
US bond markets have been volatile in the past week, with yields on 10-year US treasury bonds rising to their highest points since 2007, driven by expectations of a hike, ongoing inflation, and concerns about sovereign debt levels in the developed world.
