The Federal Reserve is set to announce its interest rate decision shortly. Luigi Speranza, Head of Markets 360 and Chief Economist at BNP Paribas, forecasts that US inflation could reach the 2% target in the near term, making it necessary for the Fed to raise rates to prevent the economy from overheating. Beyond the widely anticipated hike tonight, he expects additional rate increases in December of this year and January of next year, with the possibility of a fourth hike following January not being ruled out. Speranza explained that the current US economic expansion is primarily driven by capital expenditure, suggesting the hiking cycle would likely have only a very mild impact on growth. He also anticipates the Bank of Japan will follow the Fed's move this Friday, subsequently implementing quarterly rate hikes until the policy rate rises from the current 1% to 1.75% by March, at which point a pause would occur.

Turning to the US economy, Calvin Tse, Head of US Economics and Strategy Research at BNP Paribas, noted that four pillars are currently underpinning domestic growth: fiscal stimulus, monetary policy, the wealth effect, and AI. He pointed out that amid the Middle East conflict and inflation, one might expect restrictive policies; however, the US has maintained an accommodative stance for most of the year, acting as a tailwind for economic growth. Furthermore, as the birthplace of most AI advancements, the relentless demand in this sector is fueling both economic output and job creation. Tse projects that hiring will pick up towards the end of this year and into early next year, with the unemployment rate falling to 4% by year-end and further to 3.9% in early 2025. However, due to substantial debt levels, he expects US bond yields to continue their upward trajectory, while the US dollar is likely to edge higher.