US likely to make last rate hike: business news

• This weekly roundup brings you the latest stories from the world of business and finance.
• Top economic stories: Federal Reserve could make last rate hike of 2023 in May; China’s Economy Gains Momentum, But Global Risks Challenge Outlook; The UK is just a major industrialized nation with double digit inflation.

1. The US Federal Reserve is likely to hike rates by 25 basis points and then pause for the rest of the year

According to a Reuters poll of economists, the US Federal Reserve will make a final 25 basis point rate hike in May and then hold rates steady for the remainder of 2023. The survey also showed that a short and shallow US recession is likely this year.

The Fed appears to be nearing the end of its rate hike cycle.

Image: Reuters Graphics

Concerns about an economic downturn, which the Fed also voiced at its monetary policy meeting on April 21-22. March stressed and worries about the strain on the banking sector have encouraged markets to price in a cut of at least 25 basis points by the end of 2023.

However, with inflation well above double the Fed’s 2% target, ongoing strength in the labor market and a significant easing in the banking sector in recent weeks, a rate cut looks less likely than higher rates.

Two-year US Treasury yields, which typically reflect near-term interest rate expectations, have risen nearly 75 basis points over the past month as still-strong data has dimmed the prospect of rate cuts.

“On the data front, despite the inflation slowdown in March, there is still much to do to get back to the 2% target,” said Michael Gapen, chief US economist at BofA Securities.

2. China’s economy is gaining momentum, but global risks challenge the outlook

China’s economy grew faster-than-expected in the first quarter as the end of tough COVID restrictions eased businesses and consumers out of crippling pandemic disruptions, though headwinds from a global slowdown suggest a bumpy ride.

More than a year of sweeping tightening of global monetary policy to curb inflation has hampered global economic growth, leaving many countries, including China, dependent on domestic demand to boost momentum and challenging policymakers seeking post-COVID stability .

China’s economy grew faster than forecast in the first quarter.

Image: Reuters Graphics

China’s GDP grew 4.5% year on year from January to March, data from the National Bureau of Statistics showed. This is up from 2.9% in the previous quarter. It also beat analysts’ forecasts for a 4.0% expansion, marking the strongest growth in a year.

A recovery in China’s economy is still seen as key to global growth this year as developed countries are hampered by persistently high inflation, rising interest rates and sluggish expansion following the pandemic and Russia’s invasion of Ukraine.

3. News in brief: business stories from around the world

Britain is now the only major industrialized nation with double-digit inflation rates. Annual consumer price inflation fell to 10.1% last month but defied forecasts for a larger fall of 10.4% in February after a record rise in bread prices, the Bureau for National Statistics said.

The federal government will slightly raise its economic growth forecast for this year to 0.4% from a previously forecast 0.2%, two sources told Reuters. For 2024, the government will slightly lower its forecast to 1.6% from 1.8% forecast in January, the sources said.

New Bank of Japan governor Kazuo Ueda will not start unwinding ultra-loose policy at the bank’s April 27-28 meeting, nearly 90% of economists polled by Reuters said. The likelihood of a surprise change in Ueda’s first rate review appears to have faded after he said changes would not come quickly amid turmoil in the western banking sector and fears of a global economic slowdown.

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Argentina’s central bank hiked its benchmark interest rate more-than-expected, by 300 basis points to 81% after inflation beat expectations in March, reaching 104% on an annualized basis. March inflation data hit 7.7%, the highest monthly level in two decades.

Australia’s central bank is expected to have a new technical committee to manage monetary policy. Independent expert members will be given more responsibility for setting interest rates, diluting the bank’s traditional power over policy.

Russia’s economic growth for 2023 is likely to be at the upper end of the central bank’s forecast range of minus 1% to 1%, Central Bank Deputy Governor Alexei Zabotkin said in an interview on state television. Russia’s economy shrank by 2.1% in 2022 under pressure from Western sanctions and the aftermath of its military campaign in Ukraine.

Governments and central banks must face the need for deeper reforms instead of taking quick monetary and fiscal measures whenever there is a recession, warned Agustín Carstens, head of the Bank for International Settlements. These measures only fuel inflation or create financial instability, the Financial Times reported on him.

4. More on finance and business on the agenda

While interest rates in advanced economies have started to rise, rampant inflation has reduced potential gains, experts say. In its latest report, the IMF predicts that real interest rates in advanced economies will return to their pre-pandemic levels once inflation is tamed.

The recent collapse of Silicon Valley Bank was due to falling assets as interest rates rise – this is known as interest rate risk. Central banks could come under pressure to de-risk interest rate risk, which in turn could result in them slowing rate hikes – but this could mean that even higher rates are needed over the longer term.

Interest rates have risen around the world due to record-breaking inflation – and that means the way we spend and save is changing. Here’s how it affects your life—the economy, your spending, your savings, the cost of housing, and the cost of borrowing.