Aberdeen Investment: The probability of a rate hike in September is similar, and the Federal Reserve does not rule out raising interest rates to demonstrate its determination against inflation

According to the Zhitong Finance APP, Peng Zhujun, Senior Investment Manager of Asian Fixed Income at Aberdeen Investment, stated in a media interview that the chances of interest rate hikes and no hikes are currently similar, but it cannot be ruled out that the Federal Reserve may be forced to raise rates in September to demonstrate its determination against inflation. Peng Zhujun noted that during the most recent meeting, the Federal Reserve kept interest rates unchanged, but three committee members supported a rate hike, indicating internal divisions regarding inflation risks. Currently, the probabilities of a rate hike and no hike in September are very close, but attention should still be paid to oil prices, inflation data, and developments in the Middle East.

Peng Zhujun stated, "If inflationary pressures are high and show no signs of easing, and if the Strait of Hormuz remains closed, leading oil prices to rebound to $90 or even above $100, the chances of a rate hike will further increase. The situation in the Middle East is volatile, and tensions are high on the other side of the strait, which could further drive up energy prices."

Peng Zhujun mentioned that the last meeting of the Federal Reserve raised doubts about the authorities' credibility in the market. Chair Waller emphasized a firm commitment to the 2% inflation target but did not provide clear direction or actions, leading the market to question the Federal Reserve's determination against inflation. For this reason, the bank estimates that the Federal Reserve may also be forced to raise rates in September to demonstrate its commitment to combating inflation and restore market confidence in maintaining the 2% inflation target.

Peng Zhujun pointed out, "If the U.S. does not raise rates in September, it indicates that the inflation data from June to August may still be relatively good, thus reducing the likelihood of a rate hike in October, as one month’s data will not drastically change the situation."

She indicated that generally, the Federal Reserve will observe data for at least two months before making corresponding interest rate decisions. Therefore, if there is no rate hike in September, the chances of no hike in October are also relatively high, and the direction of interest rates will be decided based on data in December.

With the Federal Reserve no longer providing forward guidance, Peng Zhujun stated that the market will continuously speculate on the Federal Reserve's next moves, leading to significant uncertainty for investors regarding future interest rate trends. Coupled with the fluctuating situation in the Middle East, it is expected that U.S. bond yields will continue to experience significant volatility over the next two to three months