Fed Rate Hike Pause May Extend into 2027, ING Economist Warns of Japan Interest Rate Hike

According to James Knightley, Chief International Economist at ING, the US Federal Reserve may hold interest rates steady for longer than expected. After weak jobs data and two benign inflation readings, market expectations of a rate hike have decreased.

Knightley believes that the impact of higher chip and memory prices on inflation will be limited due to their small weight in the US inflation basket. He also notes that hedonic pricing will help reduce the effect of these price increases.

However, Knightley predicts that Japan may need to raise interest rates to prevent broader Asian currency weakness, as the US administration is keen for Japan to step up and maintain yen stability.