jordan pulse -

Global market attention turns Wednesday to the US Federal Reserve amid a sharp shift in interest rate expectations, as probabilities of a rate hike jumped to around 90%, driven by accelerating inflation and rising energy prices, at a time when the 10-year US Treasury yield exceeded 5% for the first time since 2023.
​A higher probability does not mean the rate hike decision is finalized; the Federal Open Market Committee (FOMC) began a two-day meeting Tuesday, with its decision scheduled for announcement on Wednesday, September 16, while the committee still holds the option of keeping interest rates unchanged if it deems economic risks do not warrant further monetary tightening.
​US interest rates currently stand within the range of 3.50%-3.75%, after the Fed decided to hold rates steady at its previous meeting in July. Markets currently favor a 25 basis point increase if the Fed opts to hike, raising the target range to 3.75%-4.00%.
​For Jordan, the US decision carries direct significance given the Jordanian Dinar's peg to the US Dollar, making global interest rate developments, particularly in the US, a key factor in local monetary policy calculations. The Central Bank of Jordan's main interest rate currently stands at 5.75%.
​Swift Shift in Market Expectations
​The importance of the September meeting highlights the rapid shift in market and economist expectations in less than a week.
​In a Reuters poll published on September 9, more than two-thirds of surveyed economists expected the Fed to keep interest rates unchanged during the current meeting and to hold them steady through the end of the year.
​However, the picture changed dramatically following the release of US inflation data. The latest Reuters survey, conducted after the data release, showed that 86 out of 101 economists (85%) now expect a quarter-point rate hike at the September 15-16 meeting, compared to a clear majority expecting a pause just days prior.
​In financial markets, interest rate futures now price in nearly a 90% probability of a rate hike at this meeting, as well as multiple potential increases through July next year, reflecting changing investor expectations regarding how long the Fed may need to address inflationary pressures.
​Nevertheless, these figures remain an expression of market expectations at a specific moment in time and do not constitute an official indication from the Federal Reserve regarding Wednesday's decision.
​Inflation Redraws the Landscape
​The major shift in expectations followed official data showing that the US Consumer Price Index (CPI) rose 0.4% in August on a monthly basis, after a 0.1% increase in July, bringing the annual inflation rate to 3.4%.
​Data from the US Bureau of Labor Statistics showed that gasoline prices rose 3.9% in August, accounting for more than one-third of the monthly CPI increase.
​The overall energy index rose 2.1% in a single month and 16.3% compared to August last year, while fuel oil recorded a monthly jump of 10.1%, reflecting the magnitude of energy-driven pressures on the broader price level.
​These developments carry added weight for the Fed, as inflation remains above its 2% target, while elevated oil prices heighten concerns about sustained price pressures or their gradual spillover into other sectors of the economy.
​The Fed had already noted in its previous meeting that inflation remains high relative to its target and that supply shocks have contributed to price increases in several sectors, including energy.
​Division Appeared Prior to the September Meeting
​Pressures toward a rate hike did not begin solely with the August data. Minutes from the previous FOMC meeting revealed that the decision to pause rates in July was not unanimous.
​Nine members voted to maintain the target range at 3.50%-3.75%, while three members dissented, preferring a 25 basis point rate increase.
​This indicates that the option to raise rates was already under consideration within the committee before the latest inflation data, before market expectations gathered further momentum in recent days.
​However, the final outcome remains dependent on the committee's vote, its evaluation of overall economic data, and its balancing of inflation risks against economic activity and labor market conditions.
​Parallel to the shift in rate expectations, the 10-year US Treasury yield crossed the 5% threshold on Monday for the first time since October 2023, reaching approximately 5.01% during trading.
​Bond yields are not driven solely by monetary policy expectations; inflation concerns linked to higher oil prices, alongside increased US debt issuance, higher borrowing to fund AI-related investments, and concerns regarding the US budget deficit and public debt, have all put downward pressure on bond prices and pushed yields higher.
​The 10-year Treasury yield holds broad significance far beyond the US debt market, serving as one of the most prominent benchmark rates for financing in the global economy. Its movements directly impact mortgage costs, corporate credit, consumer loans, and asset pricing.
​Thus, the Fed enters its meeting facing a more complex equation: above-target inflation, an energy price shock, and long-term yields reaching levels not seen in nearly three years.
​Source: Rum News Agency