Central Banks Eye Another Interest Rate Hike This Week – Investment Watch

By city AM –

Investors are betting that the US Federal Reserve and the Bank of England will raise interest rates sharply again this week in an attempt to reduce inflation.

Both central banks are expected to monitor recession fears and continue their fight against historic price rises.

Although inflation has eased to 8.3 percent across the pond, analysts have warned that price pressures are beginning to embed themselves in the US economy, likely forcing the head of the Reserve Fed, Jerome Powell, and the rest of the rate-setting committee to raise borrowing costs 75 basis points for the third time. in line wednesday

Experts at the Wall Street investment bank, Goldman Sachs, support this move by the Fed, taking rates to 2.75 and three percent.

But the world’s most influential central bank won’t stop there.

“We expect hikes of 50 basis points in November and December, taking the funds rate to 4-4.25 percent by the end of the year,” they said in a note to clients over the weekend.

Figures released last week revealed that core inflation is still heating up, coming in at 6.3 percent last month, beating Wall Street forecasts.

Analysts worry that inflation, driven until recently by international factors beyond the Fed’s control, is being fueled by high wage growth and domestic service companies passing higher costs on to consumers through higher prices high until recently.

Similar dynamics are taking place in the UK.

Inflation fell from a 40-year high of 10.1% to 9.9% in August. However, core inflation also surprised on the upside, while the rate of increase in service prices hit a 30-year high.

Annual UK CPI inflation

UK inflation fell for the first time in almost a year in August (Source: ONS)

Markets expect Bank Governor Andrew Bailey and company to raise borrowing costs by 50 basis points to 2.25 percent, but are betting on an outside chance of a 75 basis point move, which would be the most large in the 25 years of independence from the monetary authority.

A sharper move would slow the pound’s slide against the US dollar and offset inflationary pressure driven by the government’s cost-of-living support package, “boosting the Bank’s inflation-fighting credibility,” Deutsche Bank senior economist Sanjay Raja said.[lacredibilitatdelalluitacontralainflaciódelBanc”vadirSanjayRajaeconomistasèniordeDeutscheBank[theBank’sinflationfightingcredibility”SanjayRajasenioreconomistatDeutscheBanksaid

By CityAM

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