US Fed Set to Hike Rates Amid Trump's Rate Cut Plea
The US Federal Reserve is expected to raise interest rates by 25 basis points tonight, as per market expectations. However, this decision may not be well-received by President Donald Trump, who has expressed his desire for a rate cut or no change at all.
According to Fed Chairman Kevin Warsh, the central bank will have 'work to do' if inflation does not move back towards its 2% target rapidly. This statement suggests that a rate hike is likely to be announced tonight.
Economist Diane Swonk of KPMG notes that a hike now could lower long-term rates later, as it would restore faith in the 2% target and allow the inflation premium to fall. However, if the Fed fails to raise rates, markets may tighten instead through higher mortgage rates, business borrowing costs, and interest on debt.
The rate hike is expected to strengthen the US dollar further, making US investments more attractive to global buyers. This could have a negative impact on emerging economies like India, where the rupee is already under pressure.