Rising inflation puts interest rate decisions in spotlight in US, Japan and UK
Central banks in the US, Japan and the UK will decide on interest rates this week as surging oil prices and persistent inflation increase pressure to raise them. Markets are watching closely whether new Fed chair Kevin Warsh will resist Donald Trump's push for rate cuts.
Central banks in three major economies — the United States, Japan and the United Kingdom — are set to make interest rate decisions this week amid turbulence in global bond markets driven by a fresh wave of inflation.
Attention is focused on whether Kevin Warsh, the newly appointed chair of the US Federal Reserve, will resist President Donald Trump's repeated calls for lower rates and instead persuade the Fed's board to raise them on Wednesday. Trump, who handpicked Warsh, has publicly demanded the US have the lowest interest rate in the world, but the Fed must now contend with a renewed surge in oil prices following an escalation in the US-Iran conflict. The price of crude oil surpassed $100 a barrel last week for the first time since July, as the Strait of Hormuz remains largely closed to tanker traffic and Houthi rebels advance along the Red Sea coast. Data released Friday showed US annual inflation holding steady at 3.4%, above the Fed's target for more than five years.
In the UK, Bank of England governor Andrew Bailey has struck a calm tone on above-target inflation, noting that rising mortgage rates have already done some of the work a rate increase would do. Markets and economists expect the Bank to hold its rate at 3.75% on Thursday, although three of the nine members of its monetary policy committee voted for an increase in July, and stronger-than-expected growth data could heighten inflation concerns. Thomas Pugh, chief economist at consultancy RSM, predicted the Bank will hold rates but signal potential future increases in its minutes. Financial markets now expect four UK rate rises over the next 12 months.
In Japan, the central bank is widely expected to announce a rate increase on Friday, a quarter-point rise to 1.25% that would mark the highest level in more than 30 years. US Treasury Secretary Scott Bessent has confirmed he expects Japan to raise rates. The European Central Bank raised rates last week, with its president Christine Lagarde saying the Middle East conflict continues to generate inflationary pressure.
