The United States and Taiwan ushered in Super Central Bank Week this week. Inflation levels in the United States remained high in August, and market expectations for the Federal Reserve to raise interest rates have increased. The world is paying attention to the results of its interest rate meeting. Taiwan's central bank will also hold its third quarter board of governors meeting later. The market is waiting with bated breath to see whether the interest rate trend will break the continuous hold on hold.
●U.S. inflation remains at a high level, whether the Federal Reserve will raise interest rates will set the tone
The U.S. Federal Reserve's (Fed) September interest rate decision meeting will be held from September 15th to 16th, Eastern Time, and the results of the interest rate decision are expected to be announced at 2 a.m. on September 17th, Taiwan time.
Since the annual growth rate of U.S. CPI in August was still at a high level of 3.4%, even excluding the food and energy items that changed significantly, the core CPI increased by 0.3% from July. Most markets believe that the Federal Reserve (Fed) meeting will raise the benchmark interest rate.
●Inflation pressure remains unabated and the U.S. may enter an interest rate hike cycle
Agence France-Presse reported that although the U.S. inflation rate has not picked up again, it is still well above the level earlier this year and significantly exceeds the long-term target of 2% set by the Federal Reserve. Several other Fed officials have previously stated that they are prepared to raise interest rates if August inflation data does not show an easing of price increases. The last time the Fed raised interest rates was three years ago.
The U.S. inflation rate continued to fall after peaking in 2022, but it has never dropped to the target level of 2%. It fell to 2.4% in February this year, but after U.S. President Donald Trump launched a war against Iran at the end of that month, the inflation rate soared back to its high point three years ago.
At present, the war between the United States and Iran has not ended, and international crude oil prices remain at a high level of US$100. The market even believes that the Federal Reserve may not be able to deal with inflation if it only raises interest rates slightly and briefly. The Wall Street Journal reported that central bankers do not believe that a single rate hike can reduce inflation. If the Fed raises interest rates, it shows that officials believe that current interest rates are not at an appropriate level and that a single rate hike cannot solve the problem.
●Trump may not be happy if the Fed raises interest rates
However, the United States will hold midterm elections in November. U.S. President Donald Trump expects new Federal Reserve Chairman Kevin Warsh to push for interest rate cuts to stimulate the economy. However, U.S. inflation has turned to a hawkish stance due to the U.S.-Iran war. He said earlier that he "doesn't think we are in a good situation now."
Outsiders believe that the Federal Reserve may anger Trump if it raises interest rates, making interest rate policy politically sensitive.
In early September, Trump cited the strong non-farm payrolls data in August and issued a document to pressure the Fed to cut interest rates, otherwise he would stop trade with countries that have trade deficits with the United States. Trump's article stated, "The Federal Reserve and its great new leader must learn to be smart and show patriotism. High interest rates have put the United States at a very unfair disadvantage, and I will not allow this to happen!"
●Taiwan’s central bank held a meeting of governors and supervisors on the 17th
In Taiwan, the central bank will hold its third quarter board of governors meeting on the 17th, and the market will focus on the direction of interest rate policy.
In fact, Taiwan's policy interest rate has been frozen for "9 consecutive years," but the central bank's monetary policy stance may move in the direction of tightening. Yang Jinlong, president of the central bank, said in June that two members of the board of governors had advocated raising interest rates at that time. Although the board of directors ultimately decided to keep the policy rate unchanged, he also pointed out that the attitude of monetary policy at this stage is still "hawkish".
Entering the third quarter, the General Accounting Office's latest forecast in August raised the annual growth rate of the Consumer Price Index (CPI) this year to 2.07%, which is higher than the central bank's inflation warning line. At the same time, the European Central Bank has announced an interest rate hike, and the United States and Japan are also more likely to raise interest rates. Changes in the policies of major international central banks have made the monetary policy decision-making of the Taiwan Central Bank more difficult.
●Scholars believe Taiwan has the conditions to raise interest rates, but differences in industrial performance need to be considered
Lin Qichao, chief economist of Cathay Pacific Bank, said bluntly, "Whether it is domestic conditions or international situations, the check list (of raising interest rates) has all been checked." Whether to raise interest rates is "at the discretion of the central bank."
However, Sun Mingde, director of the Prosperity Forecasting Center of the Taiwan Economic Academy, pointed out that the current market capital shortage, the divergent performance of AI and non-AI industries, and the lackluster real estate market transactions are all factors that are pulling against each other. The central bank may choose to stay on hold after weighing the situation.
