On Wednesday in the USA, the Federal Reserve Chair, Jerome Powell, confirmed the biggest interest rate increase in the USA since 1994.
Powell confirm a huge 0.75% rate increase to move interest rates to their range between 1.5% pa and 1.75%. pa Powell also confirmed that their target is to level off inflation before targeting a fall in inflation. This is the biggest rate increase in nearly 40 years and was met with surprise in markets as the Fed had previously talked about steadily increasing rates rather than big hikes.
Markets tumbled across the globe for the rest of the week.
The Hong Kong Monetary Authority then followed suit on Thursday morning, by tracking the Fed and increased based rates there by 0.75% pa to 2.0% pa.
Across Europe, the European Central Bank, the National Bank of Hungary and the Swiss National Bank all increased rates too, the latter two by a huge 0.5%pa. Although in Switzerland, central bank rates are still negative at -0.25% pa.
On Thursday, the Governor of the Bank of England, confirmed the Monetary Policy Committee’s decision by a majority of 6 to 3 to increase base rates by 0.25% to 1.25% pa. The UK is trying to balance eyewatering inflation, expected to hit 11%pa with the issue that we are heading into recession.
The Bank of England, in our opinion has ‘bottled’ the decision. A more aggressive interest rate policy would strengthen the £ meaning that imports to the UK will become cheaper, driving prices down. In addition, interest rate increases will also encourage people to save rather than spend money, if they have any, and those with mortgages will also need to make cutbacks if their mortgage payments have increased.