Earlier this month, the Federal Reserve raised interest rates by an expected 0.25 percentage point, but the Bank of England and the European Central Bank kept their hawkish line announcing more aggressive hikes of 0.5 percentage points, leaving those of the United Kingdom at 4% and those of the euro zone at 3%, their highest rates since the time of the financial crisis.
Even so, their plans for the future diverged significantly: while the Bank of England said it would only raise rates again if there were signs that inflation was not budging, the ECB took the most aggressive stance of the three central banks, insisting in which more aggressive increases were necessary and even promising another strong one next month, something that Christine Lagarde confirmed yesterday “In view of the underlying inflationary pressures, we intend to increase rates by another 50 basis points in the March appointment” .
UK and US interest rates may not stay at these levels for long as investors expect the Bank of England and the Federal Reserve to cut rates again later this year, although analysts believe they are more likely to do so next year. By then, inflation should be on the decline, and helping economies could once again be a priority. In this sense, although the IMF spent much of 2022 issuing warnings about a coming global recession, this week it has changed its message. There have been changes since the organization’s last update, such as China abandoning its zero-Covid policy, and easing energy prices in Europe. Even US spending has held up well, suggesting that the global economy is not as bad as it seemed.
What seems clear is that at the moment it is impossible to predict when the current trend in interest rates will reverse since the messages from the Central Banks (especially those from the ECB) are very contradictory, although as with Christine Lagarde I have already been involved Today I will do it shortly with Jerome Powell, the president of the United States Federal Reserve (Fed), who, after giving us some hope last week, insisted that if the US labor market remains very strong or inflation persists at high levels , “rates will have to be raised more quickly”.
On this side of the pond, all the statements by the members of the ECB go in the same direction and can be summed up in the words of one of the Germans, Isabel Schnabel, who stated last week that “We still can’t claim victory in controlling inflation. That is why we must keep the course and raise rates significantly more. If another 50 basis point increase is needed [en mayo] it will depend on incoming data and our assessment of the inflation outlook.”
