Will the Fed Raise Interest Rates Again to Fight Inflation?



The US central bank meets on Wednesday, July 27, when it publishes its monetary policy statement.

Will the Federal Reserve raise interest rates again to fight inflation?

The market’s expectation is yes, there will be another interest rate hike in July. The central bank seems determined to lower inflation, which reached 9.1 percent in June.

Growth in the US economy moved into the slow lane in the first half of the year and was easily overtaken by accelerating inflation rates. One school of thought says that the US fell into a technical recession in the second quarter after negative growth in the first quarter of minus 1.6 percent. Other views point to resilient employment levels and re-emerging sectors of the economy following COVID-19 pandemic restrictions.

The latest GDP growth rate in the US will be released on Thursday, July 28, one day after the Fed’s interest rate decision. If there is a technical recession, the US dollar may go through volatility due to the possibility that the currency could lose some of its current support. Market sentiment appears to be under wraps as gold spot prices edged higher ahead of the red-flag trading events coming up this week.

EURUSD dynamics changing?

Last week, EUR rose on better sentiment after the European Central Bank (ECB) decided to raise key interest rates from zero to 0.5 percent. After hitting parity ahead of the ECB’s decision, the dynamics of EURUSD may change further if the US drifts into recession. If EUR becomes more competitive now that the ECB is on a tightening course, it would likely strengthen spending power within the trading bloc.

In other news, US Durable Goods Orders for June are due out on Wednesday, July 27th. The results will shed more light on whether inflation is slowing investment and spending. The gauge is expected to have fallen from 0.8 percent in May to minus 0.2 percent in June. Any surprises could affect the USD.

Finally in business news, Australia announces its quarterly Consumer Price Index (CPI) results for the second quarter. Inflation is expected to have fallen from 2.1 percent in the first quarter to 1.8 percent in Q2, and any shocks to expectations could move the AUD currency pair.

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This material does not contain and should not be considered as containing investment advice, investment recommendations, an offer or solicitation for any transactions in financial instruments. Please note that such business analysis is not a reliable indicator of any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks involved.



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