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Federal Reserve ponders interest rate rise timing, tame inflation means no pressure

Federal Reserve ponders interest rate rise timing, tame inflation means no pressure
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As the Federal Reserve holds its regular two-day meeting, the financial world is poised for clues on when the cost of borrowing may go up in the United States.

Fed chair Janet Yellen and the other policymakers are examining the latest strong US economic data, thinking about their stimulus exit strategy.

Retail sales, manufacturing, the services sector and housing point towards sustainable growth, while inflation remains flat.

Speculation that the Fed could raise interest rates sooner and faster than previously predicted has pushed up the value of the US dollar and rattled stock markets worldwide.

The fact that US producer prices were flat in August, pointing to muted inflation pressures, should see the Federal Reserve in no hurry to hike rates.

Its benchmark overnight lending rate has been near zero since December 2008.

Inflation – the numbers

The US Labor Department said on Tuesday its producer price index for final demand was unchanged as gasoline and food costs fell. Producer prices had edged up 0.1 percent in July. Economists had expected a 0.1 percent increase last month.

In the 12 months through August, producer prices increased 1.8 percent after rising 1.7 percent in July.

Last month, prices at the factory gate were held back by a 1.4 percent decline in gasoline prices, which followed a 2.1 percent fall in July.

Food prices slipped 0.5 percent after rising 0.4 percent in July. Prices received for services at the final demand level increased 0.3 percent after nudging up 0.1 percent in July.

Producer prices excluding food and energy ticked up 0.1 percent, slowing from a 0.2 percent gain in July. In the 12 months through August, the core PPI for final demand advanced 1.8 percent. It had increased 1.6 percent in July.

A broader measure, which excludes food, energy and trade services, increased 0.2 percent after increasing by the same margin in July.

The personal consumption index excluding food and energy rose 0.3 percent after increasing 0.2 percent in July. Stripping out food, energy and trade, the index also rose 0.3 percent in August. That followed a 0.2 percent gain in July.

with Reuters

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