Investors have priced in quarter-point hikes from the Federal Reserve and European Central Bank this week so the focus will be on what Fed Chair Jerome Powell and ECB President Christine Lagarde say about future rate hikes.

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After taking a break from tightening credit last month, Fed Chairman Jerome Powell and his colleagues look locked in to raising interest rates by a quarter percentage point this week.

The big question facing policymakers and financial markets is what comes next. Former Fed Chair Ben Bernanke said that this week’s rate increase may be the central bank’s last in a credit-tightening campaign that’s already seen rates rise by five percentage points.

But a lot will depend on how much inflation the Fed is willing to accept, and for how long.

Randy Kroszner, a former Fed Reserve Governor, expects a 25 basis points hike and a fairly hawkish message from the central bank. While this initial rate increase may not have a significant immediate impact on the economy, the Fed's continuous vigilance and the subsequent trajectory of interest rate adjustments will be pivotal in shaping the economic outlook.

The entire world was bracing for a US recession at the start of 2023. Over six months down the line, the world’s largest economy is not shrinking, at least not yet. But if the US Federal Reserve continues with its obsession to bring inflation back to 2 percent, it will break the US economy and shake up the rest of the world in the process.

“2 percent made sense in 2012. It doesn't make sense today. Too much has changed,” Mark Matthews of Bank Julius Baer and Co (a Swiss wealth management group) told CNBC-TV18 on July 17.

In a recent interview with CNBC-TV18, Adrian Mowat, an expert in Emerging Equity Markets, pointed out that investors should brace themselves for ambiguity rather than expecting a straightforward signal from the Fed. The central bank's decisions will likely be influenced by a myriad of factors, including inflation rates, employment data, and global economic trends.

“I don’t think we will get a clear signal tomorrow. I don’t expect the significant change in the Fed’s language. The Fed has some good news in terms of inflation is trending lower but it is still well above that target of 2 percent whether you look at headline or core CPI plus employment data still remains very robust. So I think it is balanced whether the Fed will move rates up twice, once tomorrow and then again at some point over the next couple of months,” he said.

Sourced from: Forbes ADVISOR

Shifting the focus to India, Adrian Mowat suggested that the nation is entering a phase of consolidation. As the country grapples with various economic challenges, it is poised to undergo a period of stabilization and reevaluation. This phase could lay the foundation for future growth and development, making it an opportune time for investors to assess the potential opportunities that may arise.

Discussing global markets, Adrian Mowat provides a perspective on the weakening of the US Dollar. He suggested that the depreciation might have been overplayed and could stabilise in the coming period. This insight carries implications for investors and businesses with exposure to foreign currencies, as exchange rate fluctuations can significantly impact financial outcomes.

The world’s largest economy continues to add jobs outside the farms, although the pace of addition, in June 2023, was the slowest in over two and a half years. Signs are that the US economy is continuing to grow -- at a slower pace -- despite the ten rate hikes by the American central bank in 15 months.

With inputs from agencies

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(Edited by : C H Unnikrishnan)