Interest Rates

Powell’s rate cuts may go from steady to steep

10 Apr 2024

Inflation hit 3.5% in March, making a June cut to borrowing costs unlikely. But Fed Chair Jay Powell is running out of time. A decrease in September would be seen to favor President Biden. The November decision is one day post-election. The only other option: take bigger whacks.

Central banks’ noise helps dollar – and Joe Biden

28 Mar 2024

In February, traders’ hopes of rate cuts by the Federal Reserve sent the currency lower. But it has risen 1.8% in March, partly due to policymakers’ mixed messages. Until the fog clears, the greenback will rule forex markets. That curbs US inflation and may benefit the president.

BoE gears up to unnecessarily prolong worker pain

20 Mar 2024

The Bank of England is set to keep rates steady because it wants to see slower wage growth before easing policy. But pay rises are already falling and won’t cause inflation. The central bank could help 30 mln employees, and 11 mln borrowers, by cutting borrowing costs sooner.

Japan’s first step to new normal is the easiest

19 Mar 2024

The central bank raised interest rates, ending 26 years of unconventional stimulus. Policymakers hinted they will keep borrowing costs steady for a while but the pressure to curb inflation, rather than unleash its virtues, may rise fast. The hard work for the country starts now.

Only an oil slump can stop Vladimir Putin

18 Mar 2024

To keep pumping money into his Ukraine war, the newly re-elected president will have to squeeze Russians. Nobody can prevent him from further unpopular measures. A sharp drop in oil revenue might force him to change course, but that is hard and risky for the West to bring about.

ECB’s money drain has silver lining for markets

14 Mar 2024

The European Central Bank is ready to exit its huge stimulus programme. With 4.7 trln euros of bonds on its books, that will take time but policymakers want few surprises. A new regime of setting rates and relying on banks to ask for loans will wean them off cheap money.

Japan’s rate shift will hit zombie firms hardest

14 Mar 2024

The central bank could end an era of negative borrowing costs as early as next week. In this Viewsroom podcast, Breakingviews columnists argue that large companies are ready for the tightening, but many struggling small businesses could hit the wall even if policymakers go slow.

Capital Calls: Small Fed windows

12 Mar 2024

Concise views on global finance: US consumer prices rose 3.2% year-on-year in February, above the Federal Reserve’s 2% target, prompting traders to rein in hopes for rate cuts. The agency’s Chair Jerome Powell could have avoided that by guiding markets towards a higher number.

Slow growth puts ECB before Fed in rate-cut line

7 Mar 2024

The European Central Bank held borrowing costs but President Christine Lagarde suggested it might lower them in June. That could make her the first major central banker to ease policy, ahead of US Federal Reserve boss Jay Powell. Sadly, that’s only due to dire euro zone growth.

Excessive UK tax giveaways risk longer-term harm

5 Mar 2024

Finance minister Jeremy Hunt may spend some 15 bln pounds in pre-election fiscal gifts in Wednesday’s budget. He could be tempted to do more – and make life difficult for the next government – by further cutting public services. But that would put the country in a bind.

A plot twist threatens Jay Powell’s artful script

27 Feb 2024

Higher borrowing costs are helping achieve the Fed’s 2% inflation target without a recession, but US wages and consumer spending tell a different tale. The upward price pressure augurs elevated interest rates for longer. To ensure a happy ending may require revising the story.

Why central banks risk making more mistakes

27 Feb 2024

Western rate-setters were late in fighting inflation. In this Exchange podcast, TS Lombard economists Dario Perkins and Davide Oneglia argue that, as price growth abates, the US Federal Reserve and European Central Bank may be too slow in easing monetary policy.

Rivian swerves dangerously into crowded slow lane

22 Feb 2024

The electric-truck maker’s market value fell by a quarter to $11 bln after warning that production would flatline at about 57,000 vehicles. It joins rivals rapidly rewriting growth-to-profitability manuals copied from Tesla. Grinding down costs instead will be a far tougher road.

Higher rates insidiously creep into the boardroom

22 Feb 2024

Stock prices have been on a tear, in anticipation of the Fed reversing its policy. The exuberance ignores longer-term consequences of growing interest expenses. To pay them, many companies will have to cut back elsewhere. Share buybacks, capex and M&A look especially vulnerable.

Central banks’ waiting game plays with fire

21 Feb 2024

Western policymakers fret that if they cut rates too soon inflation may rebound. But keeping monetary policy tight has costs. Staying put as price growth abates means rate-setters squeeze consumers and companies, raising the odds of blowups in areas like commercial real estate.

US real estate is a micro-drama set to turn macro

15 Feb 2024

So far, loans on isolated buildings by individual banks and funds have gone bad. As mortgages worth $1.5 trln come due in the next two years, strains will also spread from offices to apartment blocks. A correction is inevitable, but its impact can still be contained.

Maxed-out shoppers put fire under Fed’s status quo

31 Jan 2024

American consumers are powering the economy. But their spendthrift ways are a big concern for central bank Chair Jay Powell. Credit card balances have just recorded the biggest jump on record and now top $1 trln. Rates are steady for now. The next move will be much riskier.

Economic slack gives Bailey cover to cut rates

31 Jan 2024

The market wants the Bank of England to lower borrowing costs soon. Governor Andrew Bailey is set to keep them steady on Thursday because inflation remains high. Yet sub-par economic performance in the next few years could pave the way for easier monetary policy from May.

Close the Volcker playbook and open Greenspan’s

30 Jan 2024

Fed Chair Jay Powell wisely embraced Paul Volcker’s inflation-fighting approach from the early 1980s and quickly raised borrowing costs. With price pressures abating, it’s time to change tactics. Leaning into Alan Greenspan’s tactical 1995 interest rate cuts makes more sense now.

ECB is battling an imaginary wage spiral

24 Jan 2024

European Central Bank President Christine Lagarde is set to hold rates this week because she fears rising salaries will boost inflation. Yet euro zone workers are getting raises of just 3.8%, down from a year ago. Frankfurt may not want to cheer bigger pay, but it can ignore it.