Markets have been jittery over whether the Fed's plan to cool the hottest U.S. inflation in four decades might be too aggressive and throw the economy into a recession by pumping the brakes on growth too hard.
Global shares mostly rose Tuesday, after Wall Street closed higher on a late flurry of buying as investors awaited another interest rate increase by the U.S. Federal Reserve.
France’s CAC 40 slipped 0.5% in early trading to 6,034.21. Germany’s DAX lost 0.3% to 12,763.74. Britain’s FTSE 100 rose 0.3% to 7,258.85. The future for the Dow industrials was unchanged while the contract for the S&P 500 edged less than 0.1% higher.
Markets have been jittery over whether the Fed’s plan to cool the hottest U.S. inflation in four decades might be too aggressive and throw the economy into a recession by pumping the brakes on growth too hard.
But expectations of the rate hike have already been taken into account, analysts said.
Federal Reserve Chair Jerome Powell bluntly warned in a speech last month that the Fed’s drive to curb inflation by aggressively raising interest rates would “bring some pain.” On Wednesday, Americans may get a better sense of how much pain could be in store.
The Fed is expected at its latest meeting to raise its key short-term rate by a substantial three-quarters of a point for the third consecutive time. Another hike that large would lift its benchmark rate _ which affects many consumer and business loans _ to a range of 3% to 3.25%, the highest level in 14 years.
Japan reported that its consumer inflation jumped in August to 3.0%, its highest level since November 1991 but well below the 8% plus readings in the U.S. Core inflation excluding volatile fresh food prices climbed 2.8%. The Bank of Japan is set to have a two-day monetary policy meeting later this week, although analysts expect the central bank to stick to its easy monetary policy.
“Expectations are that easy monetary policies are to remain in the upcoming meeting this week. The BOJ Gov. Haruhiko Kuroda previously mentioned that he wanted to see a `stable and sustainable rise’ in both wages and prices before considering any policy shift,” Yeap Jun Rong, a market strategist at IG in Singapore, said in a report.
Japan’s benchmark Nikkei 225 added 0.4% to finish at 27,688.42. Australia’s S&P/ASX 200 jumped 1.3% to 6,806.40. South Korea’s Kospi added 0.5% to 2,367.85. In China, where the loan prime rate was kept unchanged, the Shanghai Composite added 0.2% to 3,122.41. Hong Kong’s Hang Seng added 1.2% to 18,781.42.
Min Joo Kang, senior economist, South Korea and Japan, at ING Economics noted inflation remained relatively low in Japan, with energy prices rising, for instance, but not as much as in the U.S. or some parts of Europe. Housing prices haven’t risen and household income have remained stagnant.
“We think a lack of demand-side pressures is a key reason for low inflation. With little sign of improvement in household income, CPI inflation will likely fall below 2% next year,” Kang said.
The U.S. market endured its worst week in three months last week following a surprisingly hot report on inflation and big companies, including FedEx, warning about worsening trends in the economy.
Investors will get another update on the housing sector Wednesday when the National Association of Realtors releases August figures for sales of previously occupied homes.
Average long-term U.S. mortgage rates climbed above 6% last week for the first time since the housing crash of 2008. The higher rates could make an already tight housing market even more expensive for American homebuyers.
In energy trading, benchmark U.S. crude gained 65 cents to $86.38 a barrel in electronic trading on the New York Mercantile Exchange. Brent crude, the international standard, picked up 91 cents to $92.91 a barrel.
In currency trading, the U.S. dollar edged up to 143.66 Japanese yen from 143.20 yen. The euro fell to $1.0009 from $1.0024.
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