Interest rate hikes due as inflation fight goes on
Wall Street clawed back some of last week’s heavy losses to close higher despite expectations that this week’s meetings of the Federal Reserve and Bank of England will result in further interest rate hikes.
The Fed is tipped to add 75 basis points, taking rates to 2.75-3%, while the UK central bank is likely to add 50 basis points, to leave borrowers with a base rate of 2.25%.
Despite the expected hikes, the Dow Jones Industrial Average was up 0.64% at Monday’s, while the S&P 500 was 0.69% firmer and the Nasdaq Composite ended the session 0.76% stronger.
It may prove a short-term relief as investors brace for tougher action on inflation. Annual price rises dipped in both economies last month, but core inflation remains high.
Sanjay Raja, senior economist at Deutsche Bank, said a steeper move by the the Bank of England would help stem the pound’s slide against the US dollar and offset inflationary pressure driven by the government’s cost of living support package.
A 75 basis points rise would be its biggest in its 25 years of independence but would shore up the Bank’s inflation fighting credibility, he said.
Goldman Sachs is predicting further rates hikes from the Fed this year. “We expect 50 basis hikes in November and December, taking the funds rate to 4-4.25% at year end,” it said in a note to clients over the weekend.
Data showed the US housing market slowing, while Ford revealed after the close in New York that supply chain issues would cost the group as much as $1 billion in the third quarter, sending its shares lower in extended trading.