Federal Reserve: Close call on further tightening – Commerzbank
Commerzbank’s Dr. Christoph Balz expects the Federal Reserve to keep rates unchanged, but highlights a significant risk of another 25 bps hike.
Federal Reserve officials are on the fence regarding potential further interest rate increases, according to Commerzbank’s Dr. Christoph Balz. However, he warns of a substantial risk of an additional 25 basis point hike. Balz points out that gasoline prices are driving headline Consumer Price Index (CPI) data, while core inflation remains moderate.
He suggests that upcoming jobs and CPI reports could significantly influence the Fed’s decision. Factors such as political pressure and entrenched inflation expectations add complexity to the Fed’s policy decisions. With the August jobs report to be released on Friday and consumer price data due at the end of next week, the decision remains uncertain.
Balz anticipates a 0.4% rise in consumer prices from July, significantly higher than the 0.1% increase in June. The main driver is the rise in gasoline prices, which have jumped 4% following the escalation in the Persian Gulf. Fed officials might argue that inflation is easing, thus avoiding a rate hike. Although one monthly figure should not dictate the decision, some officials express concerns about high inflation influencing wage and price negotiations.
Ultimately, Commerzbank expects the Federal Reserve to keep interest rates unchanged, but acknowledges a significant risk of a different outcome if core inflation figures exceed expectations.
Written by urgent.news from FXStreet's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
