Macroscope | US inflation may be peaking but interest rates aren’t coming down any time soon
- With inflation still well above the Fed’s target, more rate increases are on the cards, and the Hong Kong Monetary Authority is sure to follow suit
- China-US trade, dominated by Chinese exports to the United States, will provide a degree of disinflation
Another increase of at least 0.5 percentage points is on the cards when the Fed next meets on September 20-21, with perhaps another couple of incremental moves to follow. A further cumulative rise of 1 percentage point in US interest rates during the next three Fed meetings is a realistic possibility.
At that point, assuming US CPI is indeed on a downward track, the Fed is likely to take a time out, leaving rates where they are to gauge whether the monetary policy tightening has sustainably driven inflation back down towards its target of 2 per cent. The HKMA will surely move in tandem with the US central bank.
As for that glimmer, lower petrol prices were the primary driver of unchanged headline CPI in July, compared to June. The annualised figure for last month, although down from June’s 9.1 per cent, was still 8.5 per cent, well above the Fed’s 2 per cent target.