The Current Interest Rate Environment

The Federal Reserve is expected to maintain its current interest rates, with a range of 5.25 to 5.5 percent, at its latest policy meeting. This decision follows a 0.25 percentage point rate increase in July. The central bank is aiming to control inflation without triggering a recession, a strategy known as a "soft landing." Although inflation has decreased from its peak of over 9 percent last summer to below 4 percent now, concerns about a potential resurgence in prices persist. Recent data showed that rising petrol prices pushed consumer prices higher in August, although core inflation, which excludes food and energy sectors, continued to slow. Some senior Fed officials, including Lorie Logan and John Williams, have indicated they do not anticipate raising interest rates in September, but they haven't ruled out future rate hikes entirely.

In the UK, the Bank of England is expected to announce its 15th consecutive interest rate increase, potentially bringing benchmark rates to 5.5 percent. This expectation holds despite indications of economic fragility. It would take a significant drop in the UK's inflation rate to potentially alter this decision, but economists anticipate an acceleration in the headline inflation rate to 7 percent due to recent surges in petrol prices. Core inflation, excluding food and energy prices, is expected to remain at 6.8 percent. Investors will closely scrutinize the Bank of England's statement accompanying its rate decision for insights into the future of its tightening cycle, particularly in light of the European Central Bank's recent "dovish hike." Additionally, the Bank of England will announce its plans for selling gilts from its Asset Purchase Facility in the next financial year, potentially increasing sales to £100 billion from the current £80 billion, according to Barclays.

Written by Ricky Bhargava