Rate hike and more rate hikes to come

In some ways, the Fed’s challenge is trickier than last year, when inflation accelerated much faster than officials expected. After being taken by surprise — Powell had initially characterized high inflation as only a temporary phenomenon — officials developed a clear vision of what was needed: An aggressive series of rate hikes to slow borrowing and spending, cool growth, and curb high inflation.


The financial markets have strengthened in anticipation of lower interest rates. In December, Fed officials had forecast that they would raise interest rates above 5 percent. However, investors expect to stop at a 4.75% to 5% range and cut rates before the end of the year. That’s true, although Powell has gone out of his way to stress that the Fed doesn’t expect a rate cut this year.

Other major central banks are also combating high inflation by raising interest rates. The European Central Bank is expected to hike interest rates by half a point at Thursday’s meeting. Inflation in Europe, while slowing, remains high at 8.5 percent in January year-on-year. Food and energy costs are fueling price spikes on the continent after Russia’s invasion of Ukraine disrupted energy markets and is still impacting consumers’ electricity bills.

The Bank of England is also expected to hike interest rates at a meeting on Thursday. Inflation has reached 10.5 percent in the UK. The International Monetary Fund has forecast that the UK economy is likely to enter recession this year. Slight growth is expected for the USA and the 20-nation euro zone.

https://www.smh.com.au/business/the-economy/fed-unveils-smaller-interest-rate-hike-but-says-more-rises-are-coming-20230202-p5chac.html?ref=rss&utm_medium=rss&utm_source=rss_business Rate hike and more rate hikes to come

Brian Lowry

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