2023-12-16 21:31:37
Interest rates confuse central banks: divergence in future policies
Officials from the Federal Reserve, the European Central Bank and the Bank of England left interest rates unchanged this week, but indicated different paths forward for monetary policy.
A report by Bloomberg, on Saturday, explains that officials in the United States are ready to lower interest rates in 2024, while officials in Europe said they will intensify their exit from pandemic-era stimulus. Meanwhile, UK policymakers were more hawkish, with many still supporting a rate hike at Thursday’s meeting.
The Federal Reserve has moved toward reversing the largest rise in interest rates in a generation following containing rising inflation so far without a recession or crisis. While Chairman Jerome Powell said on Wednesday that policymakers are ready to resume interest rate increases if price pressures return, he and his colleagues issued forecasts showing a series of cuts are likely next year.
US consumer prices rose in November due to increases in housing and other service sector costs, keeping inflation stubborn enough to thwart any interest rate cuts soon, according to Bloomberg.
The European Central Bank kept interest rates unchanged for the second meeting as inflation eased, but said it would step up its exit from stimulus. At the same time, officials said they would speed up the finalization of reinvestments under the PEPP bond purchase program. This would put all policy levers in a tightening mode, even though new forecasts showed a weaker economy dampening inflation expectations.
The Bank of England is committed to raising interest rates
The Bank of England kept interest rates at their highest level in 15 years, sticking to its message that borrowing costs will remain high for some time despite increasing bets on cuts in 2024. Governor Andrew Bailey, in a statement issued alongside the decision, said that “it remains “There is a long way to go” in the battle to control inflation.
The UK economy contracted more than expected in October. With the full impact of the Bank of England’s interest rate increases not yet felt, the economy is expected to achieve small gains at best in the fourth quarter, with some even predicting the beginning of a shallow recession, according to Bloomberg.
China’s top leaders, including President Xi Jinping, have pledged to make industrial policy their top economic priority next year, a disappointment for investors hoping to see strong stimulus to boost growth. The meeting’s focus on supporting companies to produce higher value products rather than trying to stimulate consumer spending is unlikely to boost growth significantly in the near term.
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