Investors cut bets on US and UK interest rate rises

{"text":[[{"start":10.26,"text":"Investors have cut back bets on interest rate rises by the US Federal Reserve and Bank of England as weaker economic data outweighs concerns over rising oil prices."}],[{"start":20.98,"text":"In the US, falling inflation and an unexpected decline in non-farm employment last month have prompted traders to push back their bets on the Fed’s next quarter-point rise to January 2027. At the start of this month it was fully priced in by October this year."}],[{"start":36.68,"text":"“Markets have locked on to that [weaker economic data], probably rightly so, jumping to the conclusion that this is going to slow the Fed’s timeline for moving to rate hikes,” said Robert Tipp, head of bonds at investment firm PGIM."}],[{"start":null,"text":"

"}],[{"start":50.12,"text":"On Wednesday, US President Donald Trump renewed his call for lower borrowing costs. “We would really like to see interest rates come down,” said Trump. “They keep driving the interest rates up because they’re so afraid of inflation and they shouldn’t be, they should allow interest rates to go down.”"}],[{"start":66.44,"text":"For the BoE, the chance of a rate rise before December has fallen to 63 per cent from 84 per cent this month, according to pricing in swaps markets, while a second increase is now expected in April. At the start of the month, traders were pricing a second increase by March."}],[{"start":82.24,"text":"The paring back of investors’ expectations of rate rises comes despite a rally in oil prices, which have jumped from just above $70 at the start of last month to about $94 on Thursday, reigniting a sell-off in long-dated bonds on concerns over inflation."}],[{"start":98,"text":"But a string of economic data and comments by rate-setters over the summer has at the same time raised hopes that a fresh tightening cycle can be avoided at some of the world’s big central banks, driving a rally in more interest-rate-sensitive, shorter-dated bonds in recent weeks."}],[{"start":113.2,"text":"“Time is on their side, [central banks] have got to remain steadfast,” said Colin Graham, head of multi-asset strategies at asset manager Robeco, pointing to the economic impact of raising rates too early."}],[{"start":125.88,"text":"Jan Hatzius, chief economist at Goldman Sachs, wrote this week that the market was still pricing in too much tightening by the Fed."}],[{"start":133.593,"text":"“[US] inflation news is more likely to improve further than to deteriorate anew as the year progresses,” Hatzius said. Goldman is expecting the Fed to keep rates on hold for the rest of 2026."}],[{"start":null,"text":""}],[{"start":146.1,"text":"On Wednesday, the US Treasury said it would “at least double” its purchases of long-term government debt, a move that investors said indicated the administration was getting nervous about rising borrowing costs as national debt hit a record $40tn."}],[{"start":160.84,"text":"While the Treasury’s move addresses interest rates on long-term borrowing, minutes of the Fed’s July meeting, published on Wednesday, suggested a consensus that short-term rates could stay lower for longer should the data co-operate. They said “most” US rate-setters “anticipated that inflation would step down over the rest of the year as the effects of tariffs and earlier energy price increases wane”."}],[{"start":183.24,"text":"However, many Fed officials think there is also a risk that inflation will remain high and have said they are prepared to act at their next meeting in mid-September should data show price pressures heating up."}],[{"start":194.8,"text":"Data released last week showed US inflation edged lower to 3.4 per cent in July, above the Fed’s 2 per cent target but on a disinflationary path, although August’s reading is due ahead of the central bank’s next meeting, which could yet persuade it to act on rates."}],[{"start":209.64,"text":"UK inflation data on Wednesday showed an uptick in consumer price inflation, but one largely driven by changes in the government’s energy price cap."}],[{"start":218.28,"text":"This “shouldn’t change the dovish tilt within the Bank of England”, said Matthew Amis, investment director at Aberdeen."}],[{"start":225.96,"text":"Data from the US and UK have also shown slowing wage growth this year."}],[{"start":229.88,"text":"“I think central banks can look at wage growth and really say: this [inflation] is transitory,” said Karen Ward, chief market strategist at JPMorgan Asset Management."}],[{"start":null,"text":""}],[{"start":240,"text":"Chris Jeffery, head of macro strategy at Legal & General Investment Management, said that higher prices passing from commodities to wages was “the only thing that really is going to make inflation a lasting and serious threat that needs to be dealt with by rate hikes”. He added: “So far, that is not coming through.”"}],[{"start":258.8,"text":"Markets are pricing very little probability of more than two rate rises by the BoE over the next year — a sharp contrast from the height of the energy crisis when markets were briefly pricing three or four increases."}],[{"start":271.04,"text":"However, interest rate expectations for the European Central Bank have not eased in line with the UK and US, with the ECB expected to raise rates again by September, according to swaps contracts. At its June meeting the ECB increased its policy rate by a quarter point to 2.25 per cent in response to the rise in energy prices during the Iran war."}],[{"start":292,"text":"“The dynamic on inflation is more worrying in Europe than the US,” said Nabil Milali, a portfolio manager at Edmond de Rothschild Asset Management."}],[{"start":304.6,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1787279001_8142.mp3"}