BoE Hikes Interest Rates 75bps, ECB Feeling Post-fed Interest Rate Hike Repercussions, Fed Hikes Interest Rates 75bps

Summary:

• The Bank of England increased interest rates by 0.75 percentage points to 3%.
• The Fed, which has an impact on international markets, must be monitored by the ECB.
• Jay Powell forewarned that US interest rates may rise higher than anticipated.

BoE interest rate hikes

The Bank of England increased interest rates by 0.75 percentage points to 3% in order to combat inflation in a way that hasn't been attempted in the past 30 years.

The central bank offered unusually strong guidance that interest rates wouldn't need to rise much higher to bring inflation back to its objective of 2%, despite predicting a "particularly tough outlook" with a protracted recession ahead. The Monetary Policy Committee of the Bank of England stated that market estimates for an interest rate peak of 5.25 percent were excessively high.

According to the statement, the majority of the committee thought that "additional hikes" could be necessary "for a durable return of inflation to goal, albeit to a peak lower than priced into financial markets."

BoE’s latest interest rate hike was was aggressive

The BoE's decision followed a similar move by the European Central Bank last week and a 0.75 percentage point increase by the US Federal Reserve on Wednesday. The official interest rate in the UK reached its highest point since late 2008 after being raised to 3%. Aside from a sharply reversible jump on September 16, 1992, often known as "Black Wednesday," it is the biggest increase since 1989.

A bigger rise at the meeting "would help to bring inflation back to the 2% target sustainably in the medium term, and to minimise the risks of a more lengthy and costly tightening later," according to the meeting minutes, which were approved by seven of the nine MPC members.

⚠️BREAKING:

*BANK OF ENGLAND RAISES KEY INTEREST RATE BY 75BPS TO 3.00%, LARGEST RATE HIKE SINCE 1989

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— Investing.com (@Investingcom) November 3, 2022

ECB facing repercussions from aggressive Fed

The U.S. Federal Reserve, which has an impact on international markets, must be monitored by the European Central Bank, but it cannot simply copy its policy decisions, according to ECB President Christine Lagarde on Thursday, following the Fed's guidance for even higher interest rates.

On Wednesday, the Fed increased its benchmark rate by another 75 basis points. Fed chair Jerome Powell also stated that borrowing costs would need to increase "higher than previously projected" in order to combat inflation, which caused investors to price in additional ECB rate increases as well.

But Lagarde argued that because economic conditions in the 19-country euro zone were different from those in the United States (and the ECB itself raised rates by 75 basis points last week), the ECB could not simply mimic the Fed. This point was also made by ECB board member Fabio Panetta and Bank of Italy governor Ignazio Visco.

Lagarde acknowledges ECB was affected by the Fed’s actions

Lagarde acknowledged that the ECB was "affected by the repercussions" of Fed action on the financial markets, particularly the decline in the value of the euro relative to the dollar on Thursday. Lagarde reiterated her commitment to bringing inflation down to the ECB's 2% objective by stating that "clearly the exchange rate matters and has to be taken into account in our inflation projections."

According to ECB data released on Thursday, the interest rate that banks seek from businesses increased by 55 basis points in September, the largest monthly increase since the creation of the euro, to stand at 2.41%. Since 2015, this was the highest.

*ECB PRESIDENT LAGARDE: A RECESSION WON'T BE SUFFICIENT TO SETTLE INFLATION

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— Investing.com (@Investingcom) November 3, 2022

Fed may slow down their interest rate hiking cyc;e

Jay Powell forewarned that US interest rates may rise higher than anticipated, but he also left open the prospect that the Federal Reserve might slow down its drive to tighten monetary policy.

Speaking after the central bank raised its benchmark interest rate by 0.75 percentage points for the fourth time in a row, Powell cautioned that there was still work to be done in bringing down inflation and cited a number of economic indicators to support his claim.

Powell did, however, provide a suggestion that policymakers would be open to adopting a less drastic rise at the Fed's upcoming meeting in December. The following meeting or the one after that may mark the beginning of that period.

Powell made a crucial point when he noted that before transitioning to lesser hikes, the Fed did not need to wait for several months of lower inflation data.

⚠️BREAKING:

*FED CHAIR POWELL SAYS TIME TO SLOW RATE HIKES MAY COME 'AS SOON AS NEXT MEETING'$DIA $SPY $QQQ 🇺🇸 🇺🇸

— Investing.com (@Investingcom) November 2, 2022

Sources: twitter.com, investing.com, ft.com