Fed rules out rate hike. Will the RBA now do the same?

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Fed rules out rate hike. Will the RBA now do the same?

The US Federal Reserve maintained its policy rate within the 5.25%-5.50% range as anticipated. Notably, Fed Chair Powell, in the press conference, expressed that while the central bank remains vigilant about inflation risks, a hike is "unlikely" for the next move.

Will the Reserve Bank of Australia (RBA) echo a similar stance when it announces its interest rate decision next week?

Although there were hopeful indications that inflation in Australia was trending in the right direction, these were dashed recently by a stronger-than-expected reading for the March quarter.

With hopes for a rate cut dashed, speculation now centers around the possibility of another increase before 2024 concludes. Bloomberg reports a shift in expectations from rate cuts to a potential rise by year-end. Market sentiment has transitioned from a 70% likelihood of an interest rate cut in August to a 50% probability of a 0.25% rate hike, which is a huge shift in sentiment.

If indeed an interest rate hike materializes, it would place Australia in stark contrast to other central banks.

Presently, the RBA's cash rate stands at 4.35%. None of the major four banks anticipate the RBA's next move to be an increase, with all still projecting a rate cut by Christmas. However, these forecasts remain subject to change in the lead-up to the RBA's decision.