The Federal Reserve is guaranteed to raise US interest rates this week, economists believe, but debate about where it will go next is reaching fever pitch.
The US central bank's Federal Open Market Committee (FOMC) meets on Wednesday and is expected to stage the 16th consecutive hike to US rates. That would take the benchmark rate up a quarter point to 5 percent.
"Another rate hike is virtually certain, so the markets will focus on how the directive characterizes the outlook for policy in the coming meetings," Lehman Brothers economists said.
Wall Street's hopes of an imminent pause to the Fed's long campaign of hikes, which began in mid-2004, have soared since Chairman Ben Bernanke last month hinted at an end "at some point in the future."
Investors decided that point would come sooner rather than later, despite Bernanke's reported complaint to a television anchorwoman that the markets had taken a far too rosy view of his remarks.
Any decision to pause "does not preclude actions at subsequent meetings," and the Fed "will not hesitate to act," if necessary, to keep inflation in check, Bernanke stressed in congressional testimony last month.
But on Friday, US shares powered close to all-time highs after weak jobs growth last month raised hopes for a Fed pause even higher.
The Dow Jones share average rocketed 138.88 points (1.21 percent) to close at a six-year high of 11,577.74. The blue-chip index is not far off its all-time closing high of 11,722.98 reached in January 2000.
The rally came after the US Labor Department's non-farm payrolls report showed that US employers added a weaker-than-expected 138,000 new jobs last month, the worst level since October.
But on a less positive note for interest rates heading into the FOMC meeting, the payrolls report also showed a sharp rise in wages.
Average hourly earnings increased US$0.09, or 0.5 percent, to US$16.61 last month, the Labor Department said. Earnings are up 3.8 percent in the past year, the biggest year-over-year gain since August 2001.
"Suffice it to say that the Fed will have to balance the modest job growth revealed in this report with the accelerating pace of wage growth," said Eric Lascelles, currency and fixed-income strategist at TD Securities.
"It seems fairly safe to assume that the Fed will hike rates by 25 basis points to 5.0 percent next Wednesday, but the jury remains out for any decision after that, in light of Bernanke's unclear comments last week and the latest string of economic data," he said.
Until recently, record-breaking oil prices had failed to have much effect on consumer prices in the US. Neither have US workers derived much benefit in their pay packets from robust growth.
That appears now to be changing, with more and more businesses saying they are having to pass higher commodity costs on to their customers.
"In-phase world growth, where just about every part of the world is now expanding, is putting pressure on commodity prices, not just oil," said Joel Naroff at Naroff Economic Advisors.
"With labor costs rising, Mr Bernanke has to be worried that this could lead to higher inflation," he said.
But against that, Bernanke's Fed is keen not to take US rates so high that they kill the economy.
The chairman believes that after registering a blistering growth pace of 4.8 percent in the January-March quarter, the US economy is set to soften naturally, particularly as the red-hot property market cools.
"Based on the information in hand, it seems reasonable to expect that economic growth will moderate toward a more sustainable pace as the year progresses," Bernanke told the US Congress on April 27.
SECURITY: As China is ‘reshaping’ Hong Kong’s population, Taiwan must raise the eligibility threshold for applications from Hong Kongers, Chiu Chui-cheng said When Hong Kong and Macau citizens apply for residency in Taiwan, it would be under a new category that includes a “national security observation period,” Mainland Affairs Council (MAC) Minister Chiu Chui-cheng (邱垂正) said yesterday. President William Lai (賴清德) on March 13 announced 17 strategies to counter China’s aggression toward Taiwan, including incorporating national security considerations into the review process for residency applications from Hong Kong and Macau citizens. The situation in Hong Kong is constantly changing, Chiu said to media yesterday on the sidelines of the Taipei Technology Run hosted by the Taipei Neihu Technology Park Development Association. With
CARROT AND STICK: While unrelenting in its military threats, China attracted nearly 40,000 Taiwanese to over 400 business events last year Nearly 40,000 Taiwanese last year joined industry events in China, such as conferences and trade fairs, supported by the Chinese government, a study showed yesterday, as Beijing ramps up a charm offensive toward Taipei alongside military pressure. China has long taken a carrot-and-stick approach to Taiwan, threatening it with the prospect of military action while reaching out to those it believes are amenable to Beijing’s point of view. Taiwanese security officials are wary of what they see as Beijing’s influence campaigns to sway public opinion after Taipei and Beijing gradually resumed travel links halted by the COVID-19 pandemic, but the scale of
A US Marine Corps regiment equipped with Naval Strike Missiles (NSM) is set to participate in the upcoming Balikatan 25 exercise in the Luzon Strait, marking the system’s first-ever deployment in the Philippines. US and Philippine officials have separately confirmed that the Navy Marine Expeditionary Ship Interdiction System (NMESIS) — the mobile launch platform for the Naval Strike Missile — would take part in the joint exercise. The missiles are being deployed to “a strategic first island chain chokepoint” in the waters between Taiwan proper and the Philippines, US-based Naval News reported. “The Luzon Strait and Bashi Channel represent a critical access
Pope Francis is be laid to rest on Saturday after lying in state for three days in St Peter’s Basilica, where the faithful are expected to flock to pay their respects to history’s first Latin American pontiff. The cardinals met yesterday in the Vatican’s synod hall to chart the next steps before a conclave begins to choose Francis’ successor, as condolences poured in from around the world. According to current norms, the conclave must begin between May 5 and 10. The cardinals set the funeral for Saturday at 10am in St Peter’s Square, to be celebrated by the dean of the College