Hike or hold: Investors split ahead of Fed decision
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Good morning from the Financial Times. Today is Monday, July 27th, and this is your FT News Briefing.
How is the Fed decision framed as 'to hike or not to hike' and what headlines introduce it?
To hike or not to hike, that is the question facing the Fed this week. Plus, violent wildfires continue to rage in France and Spain. And we'll talk about how developing countries are trying to plan for the next energy crisis.
Countries from South Africa to India to Pakistan to the Philippines are, in some cases, for the very first time, thinking of acquiring these reserves or expanding what they have.
I'm Victoria Craig, and here's the news you need to start your day.
We're keeping tabs on interest rate decisions this week in the U.K., Japan, and here in the U.S. But it's that last one, what the Federal Reserve will do at its two-day meeting, that's still a bit of a toss-up. Investors have boosted bets that policymakers will opt to raise rates on Wednesday as this month's surge in oil prices threatens to ignite a fresh bout of inflation. Claire Jones is here to chat about what the discussion around that roundtable is likely to be. Claire is our U.S.
Why have investors increased odds of a Fed rate rise after the oil price surge?
economics editor. Hi there.
Hi, Victoria.
Okay, so it's almost a 50-50 call. That's how one asset manager put the odds of a rate rise this week. What is going to be the deciding factor?
So the market odds, as we are talking something like 38% of a rate rise, that's unusually high this far out from a Fed meeting. Usually markets are pretty sure what the Fed's going to do at its next meeting a few days in advance. Here, it's not clear the way that the debate will go. And the reason for that is Kevin Walsh. And I think he's going to be the deciding factor here.
Which Fed officials and unknowns are shaping market uncertainty ahead of the meeting?
We don't know much about how Walsh, the new Fed chair, really views the economic outlook going into this meeting. So that's really raised a lot of questions among Fed watchers as to what exactly he's going to go into the two-day meeting arguing.
And it's that tight-lipped strategy from the Fed chair that's really sort of, as you mentioned, creating a lot more uncertainty. This marked change from Fedcoms of the recent past, could that potentially make for more market volatility after this decision if investors aren't quite pricing the odds correctly?
Well, I think in the run up to it, we've seen a very, very active federal funds futures market. And that really speaks to the fact that Walsh being tight lipped does raise the prospect of more volatility. People just aren't sure how to pass the data, the remarks by other officials. We've also seen the oil price whipsaw in the six weeks since the Fed last met. There's a lot going on here. And without a clear narrative from the Fed chair, we've seen volatility in the run up to the meeting. And if we don't get clear remarks from him at the press conference after the decision on Wednesday, then, yeah, we could see that volatility continue.
Inflation obviously very important to this decision. And the Fed's preferred inflation gauge sat just above 4 percent in May. That's the latest read on that gauge. That's more than double the Fed's target. So is there a risk that the central bank is getting behind on its inflation fighting mandate?
I think that is a real risk if you speak to a lot of people. The ones who've been most vocal in saying that we really need to take action on inflation sooner rather than later have been Laurie Logan, the head of the Dallas Fed, and her counterpart in Cleveland, Beth Hamack. Both of them have got votes on Wednesday, and it'll be very interesting to see if they vote for a hike, even if the bulk of the committee opts to hold interest rates.
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Chapters
7 chapters
1
What upcoming events and promos does the FT Weekend Festival announcement cover?
0:00–0:40
2
How is the Fed decision framed as 'to hike or not to hike' and what headlines introduce it?
0:40–1:46
3
Why have investors increased odds of a Fed rate rise after the oil price surge?
1:46–2:25
4
Which Fed officials and unknowns are shaping market uncertainty ahead of the meeting?
2:25–6:01
5
How might geopolitics and the Iran conflict affect the Fed's rate decision and forecasts?
6:01–9:04
6
What is driving the scale and severity of wildfires in France and Spain this season?
9:04–11:45
7
How are developing countries planning emergency fuel stockpiles and what challenges do they face?
11:45–12:23