Written by Millan Chauhan.
Last Wednesday, we saw the Federal Reserve’s meeting minutes released which provided further insight into policymakers’ decision making and outlook. In June, Federal Reserve officials paused the interest rate rising cycle to subsequently reassess the impact of their hikes on the economy. This followed ten straight interest rate hikes which have raised rates to 5.25% over the course of the last 15 months. The minutes stated that further monetary tightening is likely but at a slower pace going forward with all but two of the eighteen officials foreseeing rates to be higher by the end of the year. Global equity markets reacted negatively to the Federal Reserve’s indication that it will likely have to continue to raise rates with the MSCI All Country World Index returning -2.2% last week in GBP terms.
We also saw US employment data released last week which showed that an additional 209,000 jobs were added in June 2023, missing expectations for the first time in 15 months, indicating a modest slowdown in US employment and that hiring could be beginning to slow. Consensus forecasts were expecting 240,000 jobs to be added in June with the actual figure considerably lower than that and also significantly below May’s revised figure of 306,000 jobs. However, the unemployment rate remained at 3.6%, in line with expectations. US payroll data is an important factor for policymakers and is one of many economic indicators the Federal Reserve consider as part of their decision-making process.
The Bank of England’s Monetary Policy Committee is not set to meet again until early August, however markets are now forecasting UK interest rates to climb towards 6.5% by early 2024. We saw the average 5-year fixed rate mortgage eclipse 6% and there are expectations this could climb higher if inflation continues to remain elevated. The next UK inflation data release isn’t due until the 19th July and will provide the Bank of England’s Monetary Policy Committee with another data point to make their decision.