FirstFT: Fed raises rates to highest level in 22 years

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The US Federal Reserve has raised its benchmark interest rate by a quarter of a percentage point to a new range of 5.25 to 5.5, leaving open the possibility of more increases later in the year.

Much of the markets had factored in a rate increase this month, but while stocks and bonds dipped slightly in yesterday’s trading they were largely unaffected.

At a press conference after announcing the increase, Fed chair Jay Powell would not say if more interest rate increases were planned, stating “I would say it is certainly possible that we would raise funds again at the September meeting if the data warranted”. He added: “It’s possible that we would choose to hold steady at that meeting. We’re going to be making careful assessments . . . meeting by meeting.”

Some analysts had more positive outlooks. “We think that the Fed is done raising rates,” said Bob Michele, chief investment officer at JPMorgan Asset Management. “We see enough signs of inflation moderating. By the time they meet in September, that is likely to be evident in both inflation and the growth.”

Around the world: The European central bank is also expected to raise rates by a quarter of a percentage point today to 3.75 per cent. Just as new data suggests high rates have pushed business loans in the region to the lowest level on record.

There’s a lot happening today, here is some of the big stuff:

GDP: The US economy is forecast to have expanded at an annualised rate of 1.8 per cent in the second quarter, according to a Refinitiv poll, a slight slowing from the 2 per cent pace in the first three months of the year.
McDonald’s: Investors will be focusing on commentary about consumer demand in an environment of lingering, elevated inflation when the fast-food chain reports this morning. Analysts expect McDonald’s to report a nearly 10 per cent increase in revenue to $6.3bn and earnings of $2.80 a share.
Ford: The automaker should update investors on how its new vision is progressing, as it seeks to cut costs in the near term and position itself for a mostly electrified future. Ford recently deepened a price war with Tesla against a backdrop of overall electric vehicle sales gaining momentum in the US.
More earnings: Aerospace and defence contractor Northrop Grumman, payments processor Mastercard, pharmaceutical company Bristol-Myers Squib, confectioner Hershey, cruise line Royal Caribbean, industrials group Honeywell, carrier Southwest Airlines and motorcycle manufacturer Harley-Davidson report before the opening bell. Packaged food producer Mondelez will report after the market closes. See our Week Ahead newsletter for the full list.
More data: The durable goods report from the Census Bureau will contain details expected to show that underlying investment spending by businesses edged lower in June. Separately, jobless claims were forecast to have risen slightly to 235,000 in the week ended July 22.

Five more top stories

1. Russia unleashed a missile barrage across Ukraine yesterday as it switched the focus of its attacks from Black Sea ports to inland targets, including an air base. Ukraine’s president Volodymyr Zelenskyy said in an evening address to the nation that “the absolute majority” of missiles fired “were shot down”.

2. Hunter Biden’s plea deal with federal prosecutors has unravelled after a judge said she was not prepared to sign off on it. The president’s son will now plead not guilty to a firearm charge that under the agreement he was set to avoid. Read more about the Biden legal position here.

3. Niger soldiers claimed to have removed President Mohamed Bazoum from power in a television announcement last night, several hours after the presidential guard barricaded the African leader in his residence. If successful, the military coup would be the latest in a region that has turned against the west. Here’s why the removal of Bazoum, a key western ally, could spell further trouble.

4. Meta shares rose after it reported its first double-digit revenue growth since 2021, as Mark Zuckerberg said the company’s costly bet on artificial intelligence was already showing signs of paying off. The chief executive has sought to revive the tech giant after a period of sluggish growth and investor concern over his wager on the metaverse. Here’s what Meta is focusing on next.

AI: Anthropic, Google, Microsoft and OpenAI have formed a group to research increasingly powerful artificial intelligence and establish best practices for controlling it.
Twitter: Days after Elon Musk announced the platform’s rebranding to X, chief executive Linda Yaccarino visited Hollywood in a bid to woo talent agencies and entertainers.

5. Computer maker HP plans to move large portions of production from China to Thailand and Mexico primarily to avoid US/China trade tensions. HP’s announcement follows similar moves by Dell, which plans to exclude chips made in China from its products. Read more about HP’s plans here.

The Big Read

Luvsannamsrain Oyun-Erdene, Mongolia’s Harvard-educated, reformist prime minister, wants western mining groups to tap his country’s vast deposits of copper, uranium and other critical minerals essential to the world’s fight against climate change. The government is making sweeping reforms to win over western investors and become less reliant on China and Russia.

We’re also reading . . .

Graphic of the day

A new peer-reviewed study suggests with 95 per cent certainty that the north Atlantic’s warm water “conveyor belt”, known as the Atlantic Meridional Overturning Circulation, could collapse between 2025 and 2095. The result would be drier summers and storm-filled winters.

Take a break from the news

Summer “workcations” are on the rise. Many companies view workcations — essentially doing a job from a holiday location — as a free post-pandemic perk they can give staff in a tight labour market, and that “work from anywhere” weeks can boost productivity.