Fed Resumes Rate Hikes as US-Iran Tensions and Inflation Pressures Intersect

Daily News

Summary:

The Federal Reserve raised interest rates by 25 basis points, while the Houthi movement said it had launched two military operations against Saudi Arabia...

【Highlights】

1. Trump says interest rates should be cut to 1% or lower

2. US plans to exclude Canadian goods from federal government procurement

3. Houthis say they launched two military operations against Saudi Arabia

4. Federal Reserve raises interest rates by 25 basis points

5. Warsh explains why the Fed kept rates unchanged in July but raised them in September

6. Warsh’s 30-minute Fed press conference sets record as shortest since 2011, raising questions over the future of the format

7. Strong rebound in US August retail sales highlights economic resilience, while surging import prices add to inflation pressures

【Details】

Trump Says Interest Rates Should Be Cut to 1% or Lower

On the afternoon of September 16 local time, the Federal Reserve announced a 25-basis-point rate hike, raising the federal funds target range to 3.75%-4.00%.

US President Donald Trump subsequently posted on social media that US interest rates should be lowered to 1% or below, arguing that the United States has the best credit in the world. He said the country is experiencing an investment boom and that the economy is thriving. Trump urged the Federal Reserve to cut rates, and to do so quickly.

US Plans to Exclude Canadian Goods from Federal Government Procurement

According to information posted on the White House website on September 16, the Trump administration plans to bar Canadian-origin goods from participating in US federal civilian government procurement.

The US said the move would be a response to Canada’s “Buy Canadian” policy, accusing Ottawa of restricting US companies’ access to government procurement markets at various levels. The US said Canadian companies had previously been eligible to participate in more than $280 billion worth of US procurement projects.

The United States has previously imposed additional tariffs and other measures on certain Canadian products, including alcoholic beverages, dairy products and motor vehicles.

Houthis Say They Launched Two Military Operations Against Saudi Arabia

On September 16 local time, the Houthi movement said in a statement that it had carried out two military operations against Saudi Arabia in response to Saudi airstrikes conducted since the beginning of the week. The Houthis said they separately targeted Saudi Aramco facilities in Yanbu and an air base in Khamis Mushait.

The statement said Saudi Arabia had carried out more than 450 airstrikes during the week, targeting areas across most of Yemen’s provinces. In response, the Houthis said they launched dozens of ballistic missiles and drones at Saudi Aramco facilities in Yanbu.

The Houthis claimed the attacks directly and accurately hit their targets, causing large fires and extensive damage. The group also said it launched multiple ballistic missiles at the Khamis Mushait air base, claiming that the missiles hit their targets accurately.

The Houthis said they would continue military operations deeper inside Saudi territory and target Saudi military concentrations. The group said it would continue to respond to blockades with blockades and escalation with escalation until Saudi Arabia ends its military operations against Yemen and lifts the blockade.

Federal Reserve Raises Interest Rates by 25 Basis Points

At its latest meeting, the Federal Reserve unanimously voted 12-0 to raise interest rates by 25 basis points, bringing the target range for the federal funds rate to 3.75%-4.00%. The Fed also raised the interest rate paid on reserve balances to 3.90% and the discount rate to 4.00%.

This was the Federal Reserve’s first rate hike since July 2023.

The Fed said US inflation remains elevated and that the latest policy action would help bring inflation back toward the Committee’s 2% target in a more timely manner. The central bank reiterated its determination to achieve its price-stability objective.

The latest dot plot showed that 18 of the 19 policymakers submitted projections for the future path of interest rates, with 16 expecting another rate hike this year.

Looking further ahead, four officials projected a cumulative 75-basis-point increase in interest rates by 2026, while 12 saw a cumulative increase of 50 basis points as more appropriate. Another two officials expected only a cumulative 25-basis-point increase.

Fed Chair Warsh, following past practice, did not submit an individual interest-rate projection this time.

The Fed’s latest economic projections also showed that policymakers now expect inflation in 2025 and subsequent years to be higher overall than previously forecast.

Warsh Explains Why the Fed Held Rates Steady in July but Raised Them in September

After the Federal Reserve resumed rate hikes following a three-year hiatus, Warsh said the central bank needed to be confident that underlying inflation was moving toward the 2% target in a timely manner. However, the FOMC concluded that this condition had not yet been met, with the inflation trend still failing to show sufficient improvement.

Warsh said three things had changed between the two meetings.

First, data released in recent weeks showed that the US economy remained strong, particularly the labor market. At the same time, inflation remained elevated throughout the summer, significantly above the Fed’s 2% year-over-year inflation target.

Finally, geopolitical developments also prompted the Fed to revise its assessment of the economic outlook.

Warsh also said that he was not responsible for providing forward guidance and would not disclose details of the FOMC’s future rate decisions.

He stressed that the decision was not driven by financial markets. “We made this decision today based on our assessment of the current situation, our judgment about the employment outlook and our assessment of the strength of the economy,” he said.

“Sometimes markets try to anticipate our decisions. I look at market prices to see what information the market is conveying. But today’s decision was our own.”

Warsh’s 30-Minute Fed Press Conference Sets Record as Shortest Since 2011, Raising Questions Over the Future of the Format

On Wednesday local time, Fed Chair Warsh presided over the policy meeting, followed by a press conference that lasted approximately 30 minutes, making it the shortest press conference since Fed chairs began holding regular post-meeting news conferences in 2011.

Warsh adhered to his commitment not to provide forward guidance on the Fed’s future actions, focusing instead on the current meeting and policymakers’ assessment of the economy.

The Federal Reserve also changed the seating arrangement at the press conference. Previously, reporters from major newspapers and news agencies occupied the front rows. Under the new arrangement, seats were assigned alphabetically by media outlet, allowing Agence France-Presse to move into the front row while reporters from The Wall Street Journal were moved to the back.

Meanwhile, the future of the Fed’s regular press conference format remains uncertain. One of the special working groups established by Warsh is tasked with examining the central bank’s communication mechanisms, including press conferences and other forms of communication. This means the press conference format itself could potentially be discontinued.

Strong US August Retail Sales Rebound Highlights Economic Resilience, While Surging Import Prices Add to Inflation Pressures

US retail sales rebounded strongly in August, jumping 1.2% from the previous month, the largest increase since March. Households increased purchases across a range of goods and boosted spending at restaurants and bars, further highlighting the resilience of the US economy.

US business inventories also rose 0.8% in July, providing additional support for the outlook for third-quarter economic growth.

Meanwhile, a report from the US Labor Department showed that US import prices surged 7.0% year over year in August, the largest increase since August 2022. The sharp rise suggests that inflation could accelerate further in the coming months.

Today’s Key Events

19:00 (UTC+8) Bank of England September Interest Rate Decision

20:15 (UTC+8) ECB Chief Economist Philip Lane Speaks

20:30 (UTC+8) US August Housing Starts, Annualized

22:00 (UTC+8) US August Pending Home Sales MoM

TBD (UTC+8) US Securities and Exchange Commission roundtable on 24-hour trading

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