federal reserve

FED interest rate hike probability

Based on the latest market pricing, the probability of an interest rate hike by the Federal Reserve in November has increased to 52%

The rise in expectations followed a surprise survey of the services sector by the Institute for Supply Management in August, which showed an acceleration in economic activity, including prices paid. The overall index rose to 54.5 from 52.5, and the prices sub-index increased from 56.8 to 58.9, reflecting rising price pressures in the economy. Market participants are currently grappling with uncertainty about how much the Federal Reserve will raise interest rates and how long interest rates will remain high. Federal Reserve officials have made it clear they will keep interest rates on hold for now, but will closely monitor economic data to determine their next steps. While some economic indicators have begun to moderate, the strong performance of the US services sector serves as a forward-looking indicator of continued economic strength.

An interesting perspective to consider is that earlier in the year, there was considerable talk of an impending recession, causing companies to take a cautious approach and potentially causing consumers to cut back on spending as well. However, the predicted recession never materialized and companies now find themselves with empty inventories but still experiencing high demand. As a result, they are putting aside their previous concerns and are actively investing in replenishing their inventories. It is important to realize that most of the stagnation is caused by psychological factors and this psychological barrier may have been removed, at least from a business perspective.

However, the impact of higher interest rates on consumers, especially in terms of the affordability of items such as new cars and mortgages, can be a gradual process. The market is currently pricing in an 89 basis point cut in interest rates by December 2024, but that forecast still depends on how the economic data unfolds. The possibility of higher interest rates for a longer period is certainly a possibility. Currently, the key point of these developments is the strengthening of the dollar in the currency market; Because expectations of a possible increase in interest rates in November continue to affect currency valuation and financial markets.

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Japan

IMF Says BOJ Should Avoid Premature Exit from Monetary Easing

The International Monetary Fund said the Bank of Japan should avoid a premature exit from monetary easing, advising it to maintain its policy framework.

  • IMF advises BOJ to keep current monetary policy framework
  • Fund reiterates recommendations on long-term yield flexibility

The recommendation from the International Monetary Fund is to ensure that Japan’s economy continues to recover from the pandemic. The Bank of Japan should maintain its current monetary policy until inflation sustainably reaches its 2 percent target, according to the International Monetary Fund’s annual report on Japan released on Thursday. The Bank of Japan should also be ready to implement additional measures if necessary to support the economy, the report said. The IMF report acknowledges that Japan’s economy has shown signs of recovery, with increased exports and industrial production, as well as increased business and consumer sentiment. However, the report also highlights challenges facing Japan’s economy, including a shrinking population and the risk of a resurgence in Covid cases.

The Bank of Japan has taken a number of measures to support the economy during the pandemic, including negative interest rate policy and large-scale asset purchases. However, the IMF report suggests that the Bank of Japan could do more to support the economy, such as expanding its asset purchases and implementing yield curve controls to lower long-term interest rates further. The report also urges Japan to implement structural reforms to increase productivity and support growth. The IMF recommended that Japan implement measures to increase labor force participation, promote competition in product markets, and improve corporate governance. Overall, the IMF report on Japan highlights the importance of continued support for the Japanese economy as it recovers from the pandemic.

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