OWN CORRESPONDENT, Johannesburg | Tuesday 4.30pm.
ALL local counters were up on Tuesday ahead of a key meeting of the US Federal Reserve’s interest rate-setting committee.
There is widespread speculation the US committee will become more aggressive in the fight against inflation and boost rates by half a percentage point, making it more costly to buy cars and houses and to borrow money.
This however, didn’t damped the JSE. The all-share closed 0,88% or 65 points in the positive territory. Industrials finished 1,56% or 132 points stronger, while financials ended 1,01% or 93 points better.
Gold shares closed 1,15% or 11 points in the black. At 4pm gold was trading at $276,15 an ounce on international markets.
At the same time the Dow Jones was trading 0,90% or 96 points sharper.
There is widespread speculation the US committee will become more aggressive in the fight against inflation and boost rates by half a percentage point, making it more costly to buy cars and houses and to borrow money.
Wall Street is expecting the Federal Open Market Committee to abandon its cautious approach of raising key interest rates a quarter-percentage point at a time — as it has done the past five meetings — and raise rates by a half a point to 6,5% percent as signs emerge that inflation is creeping into the booming US economy.
At this point, if rates are raised by only a quarter-point, some will accuse the Fed of falling asleep on the job and the central bank’s credibility for stemming inflation will be in jeopardy, economists said. “I think the market has essentially boxed them in at this point,” Former Fed Governor Lyle Gramley said.
“They needed to move a bit more aggressively anyway given the fact that there are no signs of a slowdown in economic growth yet,” he said. “So I think that both the fundamentals and the market expectations point to 50 basis points.”
Gramley and others point to key reports that have shown a pickup in prices for consumer goods as well as rising pressures on employers to boost wages, benefits and bonuses to attract workers in an increasingly tight labour market.
The US unemployment rate fell to a 30-year low of 3,9% in April, the government reported this month.
“Those fundamentals…suggest that the Fed could be behind the curve,” Gramley said. He predicted the Fed will follow the 50-basis-point increase with quarter-percentage-point rises at the next two meetings in June and in August.