Fed Raises Rates Amid Global Tightening

The US Federal Reserve has raised its benchmark rate for the first time since 2023, citing strong economic growth and rising inflation. This move follows a similar tightening of monetary policy by other central banks, including the European Central Bank and the Bank of Japan.

According to Salman Ahmed, global head of macro and strategic asset allocation at Fidelity International, geopolitical fragmentation, energy security, larger fiscal footprints, supply-chain duplication, and the capital intensity of the AI investment cycle all point towards a world where inflation is likely to remain more persistent. As a result, higher interest rates are not going to reopen the Strait of Hormuz, which has been closed due to the Iran war, resulting in sustained gains in energy prices.

The Fed's rate hike may have an impact on Singapore's monetary policy, as MAS has already tightened its stance twice this year. However, MAS' main policy tool is the Singapore dollar, and domestic interest rates will likely follow the global trend. The three-month SORA has risen from 1.1797 per cent to 1.2007 in the same period.

Analysts are predicting further rate hikes by the Fed, which may start to have a hawkish impact on Singapore's monetary policy and interest rates. Maybank economist Chua Hak Bin has raised his three-month SORA forecast to 1.6 per cent for end-2026, up from 1.2 per cent; and 1.85 per cent at end-2027, up from 1.3 per cent.