Super Central Bank Week Focuses on US-Taiwan Rates, Fed May Hike Again

This week has been dubbed "Super Central Bank Week" as the United States Federal Reserve and the central bank of the Republic of China held important policy meetings within the same timeframe. For global capital markets, the interest rate decisions of these two central banks not only impact their respective domestic inflation and growth, but also drive short-term fluctuations in exchange rates, bonds, and stock markets. Investors have consequently focused their attention on the agendas in Washington and Taipei, hoping to glean insights into the future direction of monetary policy.

In the United States, the newly released Consumer Price Index for August 2023 still shows that inflationary pressures have not eased. The year-on-year growth rate of core CPI remains above 5%, well above the Fed's long-term inflation target of 2%. This data has heightened market expectations that the Federal Reserve will raise interest rates again at this week's FOMC meeting, shifting the consensus from the previous "hold steady" to a "likely 25 basis point hike." Investors have begun reallocating assets, leading to a decline in short-term US Treasury prices while the US dollar index continues to strengthen.

Should the Federal Reserve choose to raise interest rates, it would mark the eleventh rate hike since 2022, pushing US interest rates close to the 5% threshold. The direct impacts of this move include increasing corporate financing costs and suppressing demand in the housing market.