Interest rates are rising faster than expected


Global interest rates have risen more quickly than expected in the past two months, and interest rates in the Federal Reserve and the European Central Bank (ECB) are now likely to peak at a later date. and a higher level than expected in September, according to a report from Fitch Ratings.

The results of “stubbornly high” inflation and hawkish central banks’ determination to curb it make swings toward interest rate cuts “unlikely” in 2023.

Fitch expects the fed funds rate to rise by 50 basis points to 4.5% in December, then by 25 basis points at both the February and March 2023 meetings to remain at 5% for the remainder of 2023.

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The rate on key ECB refinancing operations is now expected to rise by 50 basis points to 2.5% in December and then another 25 basis points at Governing Council meetings in February and March 2023. The rate remains at 3% for the rest of 2023.

The Bank of England (BOE) is now expected to raise the policy rate by 50 basis points in December to 3.5% and then another 125 basis points to a maximum of 4.75% in December.

“The Federal Reserve, the European Central Bank and the Bank of England have raised interest rates rapidly over the past two months, with all three raising rates by 75 basis points in their last meetings. Inflation is proving stubbornly high, despite weak global energy and food prices in recent months and sharp easing in supply chain stresses in global consumer goods markets.says the rating agency.

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The rise in service inflation is “a major concern” as it indicates that pressures are becoming more entrenched and self-reinforcing.

In addition, wage growth is also high, particularly in the US and UK, reflecting “tight labor markets with historically low unemployment and a high percentage of job vacancies” for every unemployed person.

In this context, Fitch believes that central banks are increasingly determined to push interest rates to “restraint” levels (that is, above their estimates of the “neutral” rate, which neither adds nor subtracts from aggregate demand) in the coming months.

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