What happened
AMP chief economist Shane Oliver noted the US Federal Reserve is likely to raise its Fed Funds rate by 0.25% to a 3.75-4.00% range at its upcoming meeting. This would mark the central bank's first rate increase since 2023, driven by persistent core inflation and rising energy prices. Money markets indicate an 86% probability of the rate increase occurring.
Why it matters here
A rate hike by the world's primary central bank tightens global liquidity and elevates global bond yields, directly impacting Australian debt markets. Higher US yields strengthen the US dollar against the Australian dollar and limit the Reserve Bank of Australia's flexibility to ease monetary policy without putting further downward pressure on the local currency.
What to watch
Track the Federal Reserve's policy decision this week alongside the updated dot plot summary of rate projections for signals on further tightening before year-end.
Source
adviservoice.com.au