Johann Els, Chief Economist at PSG Financial Services: FED Federal Open Market Committee meeting outcome

USA interest rates: The Fed’s FOMC will decide on interest rates this week, with the decision coming on Wednesday evening SA time. I think it is still a very closely balanced decision. The market is now expecting a hike, but I think there is a good chance the Fed stays on hold. We are seeing more evidence of disinflation and some slowing in the economy. Wage growth has also slowed quite a lot over the past two years and, at around 3%, is now probably consistent with the Fed’s 2% inflation target. And with market interest rates already having risen sharply, they are doing a very large part of the Fed’s job. So, I would not be surprised by a hold this week – and I expect the decision to be split.

Frank Blackmore, Lead Economist at KPMG South Africa

With the US’s recent inflationary rates coming in hotter than expected, and Brent crude sitting above $100 at $108 a barrel, the pressure on the US economy, as with all other economies, is clearly for prices to increase across the board. I think this pressure will have mounted on Fed Chairman Walsh, who will probably therefore decide to increase the Fed funds rate in order to accommodate this, at least over the short term.

The impact of that will obviously indirectly filter through to the South African decision. I think that, even without taking the US decision into account, the South African Reserve Bank Governor and the Monetary Policy Committee will probably see the continued increase in core inflation, currently at a high of 4.3%, as being well above the target range.

Additionally, the persistence of the conflict in the Middle East and the closure of the Strait of Hormuz will both put further pressure on inflation over time, with no end in sight. Therefore, I think we’ll see action by the South African Reserve Bank next Wednesday that will result in an additional 25-basis-point increase.

If things continue the way they are, with negotiations not taking place and no clear indication of a cessation in hostilities around the Strait, particularly involving Iran, then we could see additional increases by the end of the year, including at the November meeting. But let’s see where this gets us.

ENDS