Fed interest rates: Federal Reserve, RBA to harden talk about inflation, risking market sell-off

Already a subscriber?The US and Australian central banks are expected to take a tougher stance on tackling inflation at their upcoming meetings, cementing expectations that interest rates will have to stay high for longer and risking a further sell-off in the market.

While the Fed will likely leave interest rates on hold, chairman Jerome Powell is expected to be more hawkish at his press conference that kicks of early Thursday AEST. His tone may signal the central bank is in no hurry to provide rate relief given stubborn inflation and a still-robust labour market.

While the majority of local economists are still forecasting some sort of rate relief later this year or early next, there is a growing cohort that agrees with the market. Su-Lin Ong, chief economist for Australia at RBC Capital Markets, said the likely revisions will suggest the central bank is less confident in returning inflation to the RBA’s 2 per cent to 3 per cent target within a reasonable timeframe. It will also underscores that there is a limited margin of error if inflation is “just scrapping” into target by the end of 2025.RBC last week pushed back the timing of a rate cut to early next year, from November previously.

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