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Daniel Richards - MENA Economist
Published Date: 22 September 2022
The Federal Reserve hiked its benchmark interest rate target range by 75bps for the third time in a row yesterday, taking it to 3.25% at the upper bound, in line with our expectations. The move was accompanied by some particularly hawkish messaging and projections that have rattled markets overnight. During his press conference, Fed Chair Jerome Powell spoke of recession risks and the diminishing likelihood of a soft landing as monetary policy needed to be ‘more restrictive or restrictive for longer’ as the central bank seeks to dampen inflation. Indeed, the new dot plot of interest rate projections now sees the fed funds rate rising to 4.4% this year and peaking at 4.6% in 2023. This compares with the June projection of 3.8% next year and brings the FOMC’s projections in line with our own. The economic outlook has also deteriorated, with the Fed now expecting unemployment to rise from the current 3.7% to 3.8% next quarter and 4.4% by end of next year. GDP growth is expected to slow to 0.2% this year and 1.2% in 2023, and while a recession has not been explicitly forecast, the forecast rise in unemployment and the refusal to rule it out means that it is far from off the table.
Following on from the support for households announced earlier this month, the UK Business Secretary Kwasi Kwarteng has announced measures aimed at softening the impact of the energy crisis on businesses. The ‘supported wholesale price’ will likely see electricity be capped at GBP 211/MWH, while gas will be capped at GBP 75/MWH. Discounts will be applied automatically to businesses’ bills and will remain in place for the next six months. Coming alongside the tax cuts planned by PM Liz Truss, this will weigh further on the UK’s finances – at GBP 11.1bn, public sector net borrowing exceeded projections (GBP 8.1bn) in August in data released yesterday. The so called mini budget is expected on Friday which should provide more detail on the governments plans, including a potential stamp duty cut.
In a big day for global monetary policy, the Bank of England is set to announce its MPC rate decision later today, with a 50bps hike expected. Aside from the US and Brazil which have already made their rate moves over night, coming up through the rest of the day we also have decisions from Japan, Turkey, Egypt, South Africa, Switzerland, Indonesia, Norway, Philippines, and more besides.
15:00 UK Bank of England rate decision. Forecast: 2.25%
15:00 Turkey central bank rate decision. Forecast: 13:00%
16:30 US initial jobless claims, week to September 17. Forecast: 217,000
Egypt central bank rate decision. Forecast: 11.75%
US data continues to run hot and cold
Sterling falls to historic lows