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While the local talk yesterday was that the Reserve Bank could ease up on hiking rates after jobs were lost from the economy in December, the chatter was different overseas.
US Federal Reserve vice chair Lael Brainard spoke overnight and indicated the Fed would continue on its current path of hiking interest rates despite some easing in price pressures.
“Inflation has declined in recent months, which is important for American households, businesses, and consumers…
“Even with the recent moderation, inflation remains high, and policy will need to be sufficiently restrictive for some time to make sure inflation returns to 2 per cent on a sustained basis.”
However, markets aren’t buying that the Fed will continue to be as aggressive as it has been, pricing in 0.25 per cent hike in Fed’s policy rate at its next meeting, compared to the bigger increases seen since May last year.
NAB’s head of FX strategy Ray Attrill also found nothing in Brainard’s comments to refute the market view.
“She has said nothing explicit about the market being wrong to think rates might come down before 2023 is out.”
In recent weeks, Fed policy makers have been reiterating that the rate will likely settle slightly above 5 per cent but ANZ Research is tipping it to fall just shy of that.
“We remain of the view that as the economy softens, only two more 25bp rate rises are required. But it’s a fine line and the data will have an important role to play in the Fed’s late tightening cycle deliberations.”
The next Fed meeting will wrap up on February 1 (US time) – while it’ll be a further week before the RBA board meets again after its January hiatus.
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