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[Quick Facts]

1. Powell: Further rate hikes are appropriate.

2. UK government debt exceeds 100% of GDP for the first time in more than 60 years.

3. Canada's retail sales grew faster than expected in April.

4. The EU agrees on the 11th round of sanctions against Russia.

5. Bostic favors maintaining the current target rate for the rest of 2023.

[News Details]

Powell: Further rate hikes are appropriate

U.S. inflation has moderated since the middle of last year, but inflationary pressures remain high and the process of bringing inflation to down to 2% is "a long way off," testified Federal Reserve Chairman Jerome Powell before Congress on Wednesday. As a result, almost all participants in the FOMC expect that further rate hikes are appropriate before the end of 2023.

Powell also said he would not define the Fed's decision to leave rates unchanged last week as a "pause" and noted that most policymakers believed two more 25bp rate hikes are possible before the end of the year. Subsequent decisions on the federal funds rate will be adjusted based on new data and meetings, and there will be no predetermined course.

UK government debt exceeds 100% of GDP for the first time in more than 60 years.

Soaring interest rates and inflation have pushed UK government debt above 100% of GDP for the first time since 1961, dampening Prime Minister Rishi Sunak's pledge to lower debts and undercutting hopes of a tax cut before next year's election. In May, the UK government spent 20 billion pounds ($25.5 billion) more than it took in, bringing the budget deficit to 42.9 billion pounds in the first two months of the current fiscal year, almost twice as much as in the same period last year. These figures make it difficult for Sunak to achieve significant tax cuts. And many Conservatives believe that the party must cut taxes to avoid defeat in the next election. Polls show that the Conservative Party has been trailing the opposition Labour Party by a double-digit margin.

Canada's retail sales grew faster than expected in April

Data from Statistics Canada shows that the monthly retail sales rate in April was significantly better than expected (11% published vs. 0.2% expected), with sales increasing in eight of the nine categories led by general merchandise retailers and food and beverage stores. This data has further raised market expectations for a Bank of Canada interest rate hike.

Earlier this month, the Bank of Canada raised its policy rate by 0.25 basis points to 4.75%. Bank Deputy Governor Paul Beaudry said that the tightening was partly due to the surprisingly strong consumer spending in the first quarter. Goods such as furniture are typically more sensitive to rate hikes. The April report did show that the largest decline in core retail sales came from furniture, electronics and appliance retailers, down 1.6%. Excluding price changes such as higher gasoline prices, sales rose only 0.3%, but any increase indicates that Canada is not in recession.

The EU agrees on the 11th round of sanctions against Russia

The permanent representatives of EU member states agreed in Brussels on an 11th round of sanctions against Russia, according to a social media release from the Swedish presidency of the Council of the EU. The program focuses on Russia's evasion of existing sanctions measures and blacklists individuals who, in the EU's view, have assisted the Russian side in evading sanctions.

According to the relevant procedures, the program will be adopted at the meeting of EU foreign ministers at the end of this month. At that time, the details of this round of sanctions will be officially announced to the public.

Bostic favors maintaining the current target rate for the rest of 2023

"Letting restrictive policy work for a while is prudent because the policy has been truly restrictive for less than a year, and it takes time for monetary policy changes to meaningfully influence economic activity," said Atlanta Fed President Raphael Bostic in a speech yesterday. There are good reasons to expect that tightening will become increasingly effective in the coming months, which will accelerate our progress. My basic view is that we should maintain this level for the remainder of the year.

[Focus of the Day]

UTC+8 15:30 The Swiss National Bank announces its interest rate decision

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UTC+8 22:00 Cleveland Fed President Mester gives a speech

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