The Fed Faces a Tough Choice; Rate Hike Possible
The Federal Reserve is set to announce its interest rate decision following a two-day policy meeting. Markets are awaiting the US central bank's stance regarding rising oil prices and inflation risks.
Most market participants expect the Fed to hold interest rates steady in the 3.50%–3.75% range. If this expectation holds, it would mark the fifth consecutive meeting without a rate change.
However, the possibility of a 25-basis-point rate hike has not been entirely ruled out. The CME FedWatch Tool indicates the probability of a hike has reached nearly 30%, a sharp increase from around 15% the previous week.
These expectations rose after oil prices surged again in July. Conflict between the United States and Iran disrupted shipping activity in the Strait of Hormuz and sparked concerns regarding global energy supplies.
WTI prices climbed from around US$67 in early July to break through the US$90-per-barrel mark. Although prices corrected after the US and Iran halted hostilities, oil has still gained nearly 20% over the course of the month.
If the Fed maintains rates but signals a hawkish stance, the dollar and bond yields could strengthen, while gold and stocks might come under pressure. Conversely, a more dovish tone could weaken the dollar and pave the way for gains in gold and risk assets. (arl)
Source: Newsmaker.id
