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In an effort to bring US inflation down from its 40-year high, the Federal Reserve (Fed) on Wednesday announced its widely expected interest rates increase of half a percentage point. The Fed’s rate setting committee raised the fed funds rate by 50 basis points to a range of 0.75-1.0 per cent, the biggest hike in 22 years.
In a news conference after the meeting, Fed chair Jerome Powell struck a balanced tone that ignited a relief rally in stocks and bonds, calming fears that even bigger rate hikes would lead to a severe economic slowdown.
“Inflation is much too high, and we understand the hardship it is causing,” he said.
Separately, the Bank of England on Thursday raised its benchmark interest rate by a quarter-point, as expected, to its highest level since 2009 as policymakers try to curb rising inflation that has hit its highest level for 30 years and expected to breach 10 per cent by the end of the year, with fuel, energy and food costs soaring partly due to the Russian invasion of Ukraine.
The bank’s Monetary Policy Committee approved a 25-basis point increase by a majority of 6-3, taking the base rate up to one per cent. It is the fourth time in a row that the committee has voted in favour of an interest rate hike.
In his comments to the press, Andrew Bailey, the Governor of the Bank of England, said the UK was set for “a very sharp slowdown” but declined to call it a recession.
Finally, German factory orders fell for the first time in four months in the run-up to Russia’s invasion of Ukraine, suggesting that the manufacturing sector of Europe’s largest economy is seeing a fresh downturn. Figures published by statistics agency Destatis on Thursday show that orders plunged by 4.7 per cent compared to the previous month.
Economists had forecast orders to fall by 1.1 per cent in March. The overall fall in demand was largely driven by a 6.7 per cent contraction in foreign orders. Domestic orders logged a moderate decrease of 1.8 per cent.
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