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LGT Navigator: Fed set to take another big interest rate step

September 21, 2022

The Federal Reserve (Fed) will raise its key interest rate again today to counter stubbornly high inflation. Financial markets are expecting a move of 75 basis points. However, an even more substantial rate hike of a full percentage point cannot be ruled out. Fed Chairman Powell's remarks are also awaited with the greatest excitement. The Swedish central bank has already hit the monetary brakes hard, with an interest rate hike of 100 basis points. This will be followed on Thursday by the interest rate decisions of the Bank of Japan, the Swiss National Bank and the Bank of England.

Fed set to take another big interest rate step

Ahead of the highly anticipated Fed interest rate decision, investors on Wall Street stayed under cover. The Dow Jones Industrial fell back in the course of trading to 30'465 points and closed at 30'706 points, -1.01% lower than the previous day. The S&P 500 fell -1.13% to 3'855 points and on the Nasdaq, the indices lost about -0.85%. The Federal Open Market Committee (FOMC) is most likely to raise the key interest rate again tonight at 20:00 (CET). The question is how big is the step this time – 75 or even 100 basis points? The background is the stubbornly high inflation. Although the inflation rate in the US fell in July and August, it fell less than expected and remained at a high level. The question is also how much the Fed's aggressive turnaround on interest rates will slow the world's largest economy. Technically, the US economy is already in recession after two negative quarters. In this regard, every word of Fed Chairman Jerome Powell at the following press conference (20:30 CET) will also be weighed on the gold scale. In the bond market, the yield on the benchmark ten-year US Treasury bond held at the recent level of 3.57%.

Stock markets in the Asia-Pacific region also declined in the majority at midweek, following the negative guidance from New York. In Tokyo, the Nikkei 225 trades around -1.2% lower and in Hong Kong. The Hang Seng Index loses around -1.5% with the Hang Seng Tech Index down even -2.5%. On the Chinese mainland, the Shanghai Composite and the Shenzhen Component trade around -0.5%, respectively -1.2% lower shortly before the close. The MCSI index for Asia-Pacific equities outside Japan trades a daily minus of about -1.1%.

Sweden's central bank raises key interest rate by 100 basis points

Sweden's Riksbank stepped up its fight against high inflation by raising interest rates by a full percentage point. The rate hike was thus larger than the 75 basis points expected by analysts on average. After the third interest rate hike this year, the key rate now stands at 1.75%. Inflation in Sweden recently rose to just under 10%.

In Germany, upward pressure on prices at producer level has intensified at a high level

German producer prices rose by +45.8% in August on an annual basis – the survey in 1949 – which means that price buoyancy has once again strengthened significantly. In July, annual inflation here was +37.2%. On a monthly basis, prices at the producer level also continued to rise significantly by +7.9% (consensus +2.4%).

Economic Indicators September 21

MEZ Country Indicator Last period
16:00 US Existing Home Sales (August, m/m) -5.9%
20:00 US FOMC Monetary Policy Announcement  2.5%
20:30 US Fed Press Conference

 

Earnings Calender September 21

Country Company Period
US FedEx Q1
US Accenture Q4
US Qualcomm Investor Day
US Costco Wholesale Q4

 

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Imprint
Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

 

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