Cloudier Near-Term Prospects for Central Bank Interest Rates
July 16, 2026
In a widely expected action and by a unanimous vote, the central bank rate in one country, South Korea, has been raised for the first time since January 2023 (see my review). In another (New Zealand), which on July 8th experienced its first rate tightening since May 2023, a key central bank official said more increases may need to happen. In the United States, however, Chairman Marsh’s testimony failed to clarify the timing of future interest rate changes or even if a rate hike is unavoidable sometime in the second half of 2026. The latest Fed-compiled Beige Book found U.S. growth to be slight to moderate, and this week’s price data provide a apparent reprieve against acting at the FOMC meeting later this month. There have been some expressions by officials at the European Central Bank in favor of not tightening too hastily, and Sarah Breeden, a member of the Bank of England’s Monetary Policy Committee, made some dovish policy remarks.
In overnight financial market activity prior to the release of U.S. data this morning, a narrowly mixed dollar saw losses of 0.4% against the won and rupiah, no net movement relative to the euro or yen, and gains of 0.3% relative to sterling and 0.2% versus the Swiss franc and Mexican peso. Ten-year sovereign debt yields have risen by four basis points in Italy, three bps in the Untied States, France, Japan and Great Britain, and two basis points in Germany and Spain. The $80 per barrel price of West Texas Intermediate oil has maintained but not extended its recent rise amid escalating skirmishes in the Strait of Hormuz, where shipping traffic is again scant. Prices for gold, silver and crypto fell overnight. Equities mostly lost ground but with exceptions such as the rises of 1.3% in Hong Kong and 1.1% in Indonesia. More typical against the backdrop of geopolitical strains were the declines of 2.8% in Japan’s Nikkei, 1.9% in the Shanghai Composite index, 0.9% in the German, French and Italian stock exchanges, and slight losses of three of the four major U.S. indices in futures trading.
To some extent, news about the conflict between the U.S. and Iran was eclipsed by word from Ukraine that President Zelensky had ousted the popular Defense Minister Fedorov, and this resulted in the second largest street protests in Ukraine since Russia’s attack began almost 4-1/2 years ago. Another political development being watched concerns the make-up of the next British cabinet. Andy Burnham selection as Prime Minister is expected tomorrow, but the identity of the Chancellor of the Exchequer is still a big question. Burnham will be Britain’s seventh prime minister since the Brexit Referendum a decade ago, following Cameron, May, Johnson, Truss, Sunak and Starmer.
Released U.S. data this morning reinforce the picture of an economy still chugging along. Retail sales went up just 0.2% in June following May’s jump of 1.0%, but the slowdown had been anticipated due to much lower gasoline prices. Excluding that factor, sales increased by 0.7%, and the overall year-on-year 6.7% advance in retail sales matched expectations and was close to May’s 6.9% reading. New jobless insurance claims last week fell more sharply than predicted to just 208k, fewest in ten weeks and the latest figure for overall outstanding claims also undershot expectations. The Philly Fed manufacturing survey in July saw the index improve far more than anticipated to +41.3 from 10.3 in June and -0.4 in May. Still ahead: the NAHB housing market index and pending home sales.
Economic data released in other economies today included several British pieces. Monthly GDP there edged 0.1% higher in May, reversing April’s dip and resulting in a year-on-year rise of 1.3% most in 16 months. Industrial production plunged 1.5% in May, the most in five months but still managed to record the largest on-year rise (1.0%) in a half year. Factory output edged just 0.1% upward in May, and construction sank 0.8% on month. The U.K. goods and services trade deficit of GBP 1.04 billion and goods-only trade shortfall (GBP 18.7 billion) were each the smallest in four months. A comparison of their respective deficits in the first five months of 2026 to a year earlier, however, shows increases of 25% and 12.5%, respectively.
Euroland’s trade position weakened appreciably in May. The EUR 5.0 billion seasonally adjusted deficit was the largest gap since April 2023. That compares to a peak surplus of EUR 27.0 billion scored in March of 2025. In non-adjusted terms, Euroland experienced its third deficit among the first five months of 2026 and the largest of those negative imbalances. The non-adjusted trade balance in May 2025 had been a surplus of EUR 15.0 billion. Between those months a year apart, imports had increased by 10.0%, while exports were a mere 0.1% higher.
There are two pieces of adverse news concerning Brazil. President Trump has selected that economy as the first against which to apply a revamped tariff policy, under which some Brazilian exports to the U.S. will be hit with a 25% levy. Secondly, Brazilian retail sales bounced back just 0.1% in May, less than had been projected, after dropping 1.6% in April.
Copyright 2026, Larry Greenberg. All rights reserved.
Tags: Bank of Korea, British GDP and industrial production, Euroland trade balance, Fedorov, U.S. retail sales
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