US Fed Hike Looms as Inflation Remains Unchecked

This week's key economic events are dominated by the US Federal Reserve's rate decision on Thursday, which is expected to result in a +25 bps hike. Financial markets are pricing a 75% chance of this outcome, and economists have it as their central expectation.

The reason for the increase is clear: inflation remains uncontrolled at 3.4%, with food prices up +2.7%, fuel costs up +16.3%, electricity up +4.0%, drugs down -2.7% and rents up +3.0%. The US CPI showed no change in August, but a +0.4% rise from July to August indicates an accelerating recent trend.

The University of Michigan consumer sentiment survey for September reported a sharpish and unexpected fall, now to its lowest level since the record low in May. Year-ahead inflation expectations jumped to 4.6%, the highest since June. This contrasts with Japanese business sentiment, which rose to its highest level since 2021.

The US administrative incompetence is making this shift faster, according to some analysts. The rising benchmark interest rates will do extensive and expensive damage to government budgets, which depend on high debt levels and more borrowed money.