Global Central Banks Shift to Aggressive Tightening
This week, major central banks including the Federal Reserve, Bank of England, and Bank of Japan are set to make critical interest rate decisions amid rising inflation pressures.
This week marks a pivotal moment for global monetary policy as the Federal Reserve (Fed), Bank of England (BoE), and Bank of Japan (BoJ) prepare to conduct key interest rate meetings.
Among the first movers, Sweden's central bank is anticipated to implement a significant rate hike of 75 basis points (bps) as early as tomorrow, signaling a firm stance against inflation.
The Federal Reserve is widely expected to follow suit with a 75 bps increase. Since March, the Fed has raised its benchmark federal funds rate by a total of 225 bps to counteract inflation surging to levels not seen in four decades.
On Thursday, the Bank of England will reveal its decision to raise interest rates amid the UK's inflation rate soaring to the highest among G-7 nations, reaching a 40-year peak. The BoE had previously increased its key rate by 50 bps in August, bringing it to 1.75%.
In contrast, the Bank of Japan remains an outlier by maintaining ultra-low interest rates, reflecting Japan’s relatively low inflation compared to other developed economies.
Additionally, central banks in the Philippines, Indonesia, Taiwan, Switzerland, and Norway are also expected to implement rate hikes this week, underscoring a global trend toward monetary tightening.
Caleb Silver, editor-in-chief of Investopedia, notes, "The CME Group's FedWatch Tool indicates a 20% chance that the Fed could raise rates by a full percentage point this week. Although this is less likely, some Federal Open Market Committee (FOMC) members advocate for a 4% fed funds rate by the end of 2023, which may prompt more aggressive front-loaded hikes in upcoming meetings."
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