First Rate Hike in Three Years Signals a New Policy Phase

The Federal Reserve raised its federal funds target range by 25bps to 3,75%–4,00% (in-line with ours and consensus), marking its first rate hike since July 2023 and a clear departure from the prolonged policy pause seen earlier this year. The decision was unanimous among the 12 voting FOMC members, reflecting broad agreement that inflation remains sufficiently persistent to warrant renewed monetary tightening.

The Fed’s decision appears to reflect a shift in the balance of risks, with inflation increasingly taking precedence over concerns about weakening growth. The latest SEP reinforces this view, with the median PCE inflation forecast for 2026 revised slightly higher to 3,7% from 3,6%, while the median core PCE forecast increased to 3,4% from 3,3%. At the same time, the median unemployment forecast was lowered to 4,1% from 4,3%, suggesting that policymakers currently see sufficient resilience in the labor market to absorb tighter financial conditions.

Warsh Emphasizes Cost of Capital and a Data-Dependent Policy

Warsh also placed greater emphasis on the broader cost of capital and the structural forces shaping inflation and growth. He pointed to strong productivity growth and robust capital investment, particularly the large funding needs associated with AI and data-center investment, as factors supporting stronger underlying economic activity and higher borrowing costs.

Recent earnings from major hyperscalers have also reinforced this trend, with companies continuing to raise AI-related capital expenditure plans and accelerate investment in data-center infrastructure. The resulting surge in funding requirements has been accompanied by elevated corporate bond issuance, highlighting growing competition for capital across both public and private markets. In his view, the recent rise in Treasury yields does not necessarily signal a loss of confidence in the Fed, but rather reflects stronger economic fundamentals and increased competition for capital.

At the same time, Warsh stressed that the Fed will remain highly data-dependent, with inflation and labor-market developments determining the pace of further policy adjustment. Rather than providing explicit forward guidance, he emphasized that the Fed is committed to a policy discipline rather than a predetermined rate path, leaving future decisions open to incoming data.

BABY - Boss of the Baby Retail Market

BABY - Boss of the Baby Retail Market

Calista Muskitta

Multitrend Indo

10 June 2024 - 09.02am

BABY - Boss of the Baby Retail Market

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