Interest Rates

ECB’s rear-view policy risks crashing the economy

14 Sep 2023

Fears of stubbornly high consumer prices prompted President Christine Lagarde to push rates to a record 4% on Thursday. Yet the central bank admits inflation will be around the 2% target by 2025. The bloc’s growth is already stagnating. The latest action will worsen its plight.

Erdogan’s orthodoxy creates new economic problems

13 Sep 2023

Turkey’s president finally ditched his love of low interest rates and pledged to curb inflation, currently at 59%. But Tayyip Erdogan still needs growth and will boost spending to get that. Soaring budget deficits and a weak currency will keep the economy under pressure.

Capital Calls: British wages

12 Sep 2023

Concise views on global finance: UK pay rose by an annualised 8.5% in the three months to July – more than inflation. That’s good for retirees, whose pensions will rise by that amount. But such a hot labour market is likely to prompt the Bank of England to hike rates next week.

Lagarde can stop fretting about rising salaries

11 Sep 2023

The European Central Bank chief worries that consumer prices will stay high because wages are growing at the fastest rate in 30 years. Yet raises are below inflation and slowing. In the past, the ECB cut rates even with strong labour markets. It may have to do so again soon.

Europe faces dirtier inflation fight than US

6 Sep 2023

The euro zone is trying to emulate the United States by avoiding a recession and hefty job losses, despite raising rates. The bloc may only half succeed. Weak activity, scarce credit and higher borrowing costs all point to a downturn. European workers, though, could be spared.

Bond rout will amplify Powell’s Jackson Hole words

23 Aug 2023

Yields on 10-year US debt are near a 16-year-high. That’s lifting borrowing costs even though the Federal Reserve is likely done with raising rates. More expensive loans may cause a recession. When he speaks on Friday, the Fed chair needs to calm markets without caving into them.

Bank of England rate dilemma holds little mystery

2 Aug 2023

Governor Andrew Bailey must decide on Thursday whether to raise borrowing costs by a quarter or half a percentage point. The choice will make little difference to the long-term path of interest rates. Inflation is falling and monetary policy alone cannot boost sluggish UK growth.

Lagarde hides velvet policy in iron talk

27 Jul 2023

After lifting borrowing costs to a record high, the ECB president sounded tough on inflation to persuade markets interest rates will stay elevated. But she also hinted the central bank could pause. Investors can prepare for a less aggressive monetary stance.

Japan will gain from ultra-cautious ratesetters

27 Jul 2023

The world’s third-largest economy is on the cusp of a virtuous circle where inflation lifts wages and spending. But the central bank needs to tread carefully. If it prematurely declares victory and tightens policy, it could spur a debt rout. The cost of waiting is also growing.

ECB’s tough-guy act is getting harder to maintain

26 Jul 2023

Traders expect the European Central Bank to hike rates by 25 basis points on Thursday. President Christine Lagarde wants them to stay high to curb inflation, yet markets are betting on cuts in early 2024. Unless she wins the argument, borrowing costs may have to rise more.

UK inflation dip puts Andrew Bailey on the spot

19 Jul 2023

The growth in UK consumer prices slowed more than expected in June, to 7.9%. It’s welcome news for households, and sent British stocks soaring. The Bank of England governor, though, is likely to keep hiking rates, increasing the risk he will go too far.

Andrew Bailey’s silence is hurting UK homeowners

12 Jul 2023

Traders’ confusion over the Bank of England’s decisions is sending market interest rates wild. That has pushed the cost of a popular mortgage to a 15-year high. To limit household pain, the governor needs to ditch his usual reticence and tell markets that they are wrong.

The next revolution in monetary policy is underway

30 Jun 2023

Central banks are grappling with rising prices and fragile financial markets, raising doubts about their focus on price stability. Recent interventions by the International Monetary Fund and Bank for International Settlements are signs of a broader rethink, says Felix Martin.

Central banks’ calls for pay restraint ring hollow

29 Jun 2023

Western central bankers want workers to ask for lower raises unless firms cut their margins to compensate staff. With salaries growing less than inflation, that’s a harsh demand. Past rate rises will in time cool labour markets. Officials need to talk less and wait longer.

UK banks are appropriate airbag for mortgage crash

27 Jun 2023

British politicians are starting to call out lenders that have delayed passing on higher rates to savers, even as they charge borrowers more. Bank share valuations already implied such windfalls might be temporary. The sector’s rising margins justify some political arm-twisting.

Interest rates have broken the global wealth pump

23 Jun 2023

The world has been through a second Gilded Age where the rich got richer, helped by ultra-low interest rates. In the past, such episodes ended in revolution or civil war. This time, higher borrowing costs can bring about a painful but peaceful transition, says Edward Chancellor.

China stares hard at its own lost decade

23 Jun 2023

It’s tinkering with interest rates but holding off from deeper measures needed to stimulate the economy including propping up real estate or bailing out local governments. As consumption remains depressed and investment falls, the country faces slipping into a downward spiral.

Firefighting leaves central banks on shaky ground

22 Jun 2023

Policymakers in the UK, Switzerland, Norway and Turkey all hiked rates on Thursday. Stubborn inflation gives them little choice, even though they may cause recessions. In London and Ankara, ratesetters’ job is made much harder by politicians’ own failures and need for scapegoats.

Credibility crisis requires BoE to write new plot

20 Jun 2023

The Bank of England’s inflation outlook is faulty because it relies on traders’ expectations. That leads markets to overreact to data, causing pain for homebuyers and firms. Adopting the US system, where policymakers make predictions, would curb policy mistakes and volatility.

Fed’s pause is now easier to extend

14 Jun 2023

Chair Jerome Powell’s rate-setting crew snapped its long streak of hikes. With the banking crisis stabilized, the FOMC can refocus on prices. Inflation persists, but is moving in the right direction, and there’s less reason to hew to investors expecting a fresh increase in July.