The Federal Reserve’s interest rate-setting committee announced that the benchmark interest rate will remain unchanged in the range of 5.25% to 5.5%, marking the 7th consecutive meeting without a rate change, in line with market expectations.
On the same day, HSBC Bank announced that their Prime Rate (P) will also remain unchanged, staying at the current level of 5.875%. Federal Reserve Chairman Powell stated that any future adjustment to interest rates will depend on overall economic data, including inflation metrics and labor market performance. He emphasized the need to maintain confidence in a return to a 2% inflation rate before considering a rate cut, with a continued focus on inflation risks while making decisions on rates in subsequent meetings.
Chief Deputy General Manager Cao Deming of the Mortgage Referral Department mentioned that the latest US Consumer Price Index (CPI) in May had declined for two consecutive months to 3.3%, still below the target of 2%. Despite the strong job growth in the US and the persistently high oil and housing price indices, geopolitical issues in regions like Russia-Ukraine, the Middle East crisis, and uncertainties surrounding inflation remain. With inflation progress stagnating in the first quarter, the timing for rate cuts has been delayed. The Fed’s dot plot suggests a reduction in the projected number of rate cuts for this year from 3 cuts totaling 0.75% in March to a single cut of 0.25%.
Regarding when the Fed may start cutting rates, Cao Deming explained that the US has begun to slow down the pace of balance sheet reduction since June, signaling an impending rate cut. Following rate cuts by the Bank of Canada and the European Central Bank earlier this month, he believes the Fed still has grounds to make its first rate cut within the year. It’s estimated that the Fed will consider future inflation trends, financial markets, and labor market conditions and could potentially start cutting rates as early as the third quarter. If US rates decrease, Hong Kong’s rates may follow suit and decrease to the 4% level. Cao suggests that Hong Kong banks will base their rate cut decisions on interest rate trends, external factors, and their own strategies, indicating a possibility for a slight decrease in the Prime Rate (P). Additionally, he mentioned that new mortgage rates in Hong Kong will likely stay at or above the 4% level this year, advising potential property buyers to monitor interest rate trends and evaluate their financial capacities before entering the market.