Central bankers in economies including the United States, Japan and the United Kingdom will face their moment of truth this week, as rising inflation raises the prospect of higher interest rates. Policymakers from the three countries will set rates over the next seven days amid turmoil in global bond markets. In particular, investors will be watching closely to see whether Kevin Warsh, the new chairman of the US Federal Reserve, can confront Donald Trump’s demands for rate cuts and instead persuade Fed governors to raise rates on Wednesday. hand-picked by the president of the United States, who has repeatedly demanded lower interest rates. In a Truth Social post this month, Trump claimed that the United States should have “the lowest rate of any country in the world.” He added: “The Federal Reserve Board, with its great new leader, must get smart: BE PATRIOTS for a change.” However, the central bank’s board of governors is having to deal with a new rise in oil prices after the conflict between the United States and Iran escalated again. ceremony. Photograph: Evelyn Hockstein/Reuters The cost of a barrel of crude oil surpassed $100 last week for the first time since July, as the Strait of Hormuz remained largely closed to oil tanker traffic and Houthi rebels advanced along the Red Sea coast, threatening to choke off Saudi oil supplies. Oil prices fell slightly on Friday amid hopes of new talks to reopen the waterway, but remained well above summer levels, when hostilities in the Middle East temporarily subsided. These measures are expected to fuel a further rise in US inflation, which has been above the Federal Reserve’s 2% target for more than five years. In a speech this month, Warsh said that without continued progress toward the goal, Fed officials would have “work to do.” Data released on Friday showed that US annual inflation remained unchanged at 3.4%. Andrew Bailey, the governor of the Bank of England, has sounded a calm note on above-target inflation in the UK, saying rising mortgage rates have done some of the work of a rate hike without the Bank taking action. Markets and economists predict the Bank will keep rates at 3.75% on Thursday. However, three of the Bank’s nine members of the monetary policy committee (MPC) voted in favor of a rate hike in July, and data released on Friday showing stronger-than-expected economic growth could amplify fears about inflation. central banks and raise rates.” But he predicted a “tough hold” from the Bank when the MPC meets on Thursday – a decision to leave rates unchanged, but with the published minutes pointing to possible future increases. Every weekday Subscribe to Business Today Get ready for the business day – we’ll give you all the business news and analysis you need every morning after the newsletter’s promotion. Financial markets are betting on four UK rate rises over the next 12 months, compared to the three they expected before the last increase in oil prices. A monitor showing the exchange rate between the US dollar and the Japanese yen in Tokyo. Photograph: Franck Robichon/EPA In Tokyo, the Bank of Japan (BoJ) authorities will announce their decision on Friday and are expected to increase interest rates, validating the yen’s recent recovery in currencies. levels not seen in more than 30 years, since Japan began fighting a prolonged battle against deflation or falling prices. Foreign exchange markets will support the yen in July and Scott Bessent, the Treasury secretary, has made it clear that he expects rates to rise. At an event at Southern Methodist University in Texas on Tuesday, Bessent said: “When we intervene with the Japanese yen, I have a pretty good idea of what the Bank of Japan is going to do, what they are going to do. the Japanese authorities. I have asymmetric information. Now I am the house. You can bet against me if you want.” Christine Lagarde, its president, said: “The conflict in the Middle East continues to generate inflationary pressures, and inflation will remain well above target for a prolonged period.”
