Interest Rate Hikes: At Home and Abroad
Across the US and Europe, central banks are poised to continue hiking interest rates as the US Federal Reserve (FED), European Central Bank (ECB), and the Bank of England (BoE) are scheduled to host policy meetings this week. Investors speculate that rates will continue to rise, but they expect a slower pace of growth. The BoE and ECB are anticipated to raise interest rates by 50 basis points (.50%), raising rates to the highest level since 2008. The FED is expected to hike interest rates by 25 basis points (.25%), bringing the Fed Funds rate to the highest level since the global financial crisis of 2007.
These qualified interest rate hikes hope to further combat inflationary tendencies, and recent policy appears to be having a significant effect. According to the Financial Times, “market measures of inflation suggest that traders now expect inflation to fall close to the FED and ECB targets of 2%.” However, US and Eurozone inflation still remain high with core inflation exceeding 6% in the US and 9% in the Eurozone.
Interest rates and inflation continue to be the main concern across global markets. In recent weeks, the bond market has rallied behind lower inflation expectations, but several bond market volatility professionals argue that the market has not priced in several underlying economic headwinds and fails to account for the strong possibility of recession. Maureen O’Connor, the global head of high grade debt syndicate at Wells Fargo believes that “the FED orchestrating a soft landing is a fleeting hope.”
The European Business Club leadership continues to monitor the macroeconomic landscape in the US, England, and the Eurozone to make the best decisions for our investment portfolio.
Sources:
https://www.ft.com/content/ef8452ca-f7bb-499f-a67f-51b13a5ad76c
https://www.nytimes.com/2023/01/30/business/economy/inflation-rate-fed.html