Publicly, BoE officials see that the UK is already in a recession. European Central Bank officials assume that the euro zone has entered a recession this quarter. The economies of the UK and the Eurozone have been hit by rising energy costs following the Russian invasion of Ukraine.
The United States is less exposed to the repercussions of war, but still faces the risk of deflation, with inflation and high interest rates weighing on the economy. Though Powell avoided saying a recession was imminent; But two of his colleagues indicated in forecasts released last week that GDP will contract in 2023.
As the three central banks prepare to continue raising interest rates in 2023; Interest rate hikes are unlikely to stay the same as last week’s hike.
Powell left the door open for the Fed to hike interest rates again by a quarter point in February 2023, while Lagarde told markets that she underestimated the ECB’s resolve.
Lagarde has twice signaled the possibility of a half-point rate hike and also announced plans to begin reducing inventories of about 5 trillion euros ($5.3 trillion) of bonds.
Bank of England and raise interest
Meanwhile, the BoE’s rate cuts are coming into focus. Although the majority voted last week to raise interest rates by half a point to 3.5%, two officials opposed the rate hike and indicated that monetary policy should be eased soon.
