Interest Rates

Powell was pragmatic; Lagarde will have to be

14 Dec 2023

The European Central Bank, like the US Federal Reserve, left its rates unchanged. But unlike Fed Chair Jay Powell, ECB boss Christine Lagarde didn’t imply that lower inflation meant looser monetary policy. A slowing economy and abating price pressures will push her there in 2024.

Last word of 2023 goes to Jay Powell

12 Dec 2023

Investors are pricing in 1 percentage point of US rate cuts next year. The Federal Reserve doesn’t want that, so its chair needs to talk up inflation on Wednesday. If markets keep ignoring him, rallies in stocks and bonds will continue, but the central bank’s job will get harder.

BoE is a more credible rate-cut sceptic than ECB

12 Dec 2023

Policymakers in London and Frankfurt are unlikely to touch borrowing costs this week. Their challenge is to persuade markets they are not about to start slashing them. Bank of England Governor Andrew Bailey has the easier task, but only because the UK is in worse economic shape.

Japan’s rates tweak is careful and crafty

2 Nov 2023

The central bank changed its policy to allow higher 10-year bond yields. Unlike the US, it can afford to raise borrowing costs slowly as inflation is low. In this Viewsroom podcast, Breakingviews columnists explain why monetary tightening as others loosen may give Tokyo an edge.

BoE’s tough talk on rates ignores weak homeowners

1 Nov 2023

The Bank of England is set to keep borrowing costs steady this week but insist they will stay high to curb inflation. That may be hard, given the sick housing market has yet to feel the pain of past hikes. The UK may ease policy sooner than its peers will, and the market expects.

BOJ chooses slow path out of zero-rate limbo

31 Oct 2023

Japan’s central bank again tweaked its policy to permit slightly higher yields on 10-year government bonds as it inches back to positive interest rates. The snail’s pace is understandable. Yet with bond yields rising across the developed world, it remains a loose-money outlier.

ECB’s rosy outlook is a recipe for economic pain

26 Oct 2023

Frankfurt policymakers think the euro zone will grow by 0.7% in 2023 and want to keep rates high to fight inflation. Yet most data point to stagnation or recession. A gloomier perspective would enable the European Central Bank to ease policy and help the bloc’s economy.

How the Federal Reserve got inflation wrong

10 Oct 2023

US policymakers underplayed the spike in consumer prices in 2021. In this Exchange podcast, Don Kohn, senior fellow at the Brookings Institution and former Fed vice chair, argues that a rule change a year earlier was a key reason why the central bank failed to lift rates faster.

Central banks start game of chicken over rate cuts

21 Sep 2023

Officials in Sweden and Norway hiked borrowing costs, while their British peers didn’t. All hinted policy will stay tight, fearing that stoking expectations of an early start of the loosening cycle may fuel inflation. An economic slowdown may prompt rate-setters to be less tough.

Oil spike offers only a brief boon for Fed and MbS

21 Sep 2023

Crude prices are up 25% since July, swelling the Saudi crown prince’s budget. Fed boss Jay Powell wins too: he can use it to justify inflation-busting high rates. Yet long-term, a surfeit of energy demand over supply will complicate life for both central bankers and oil tsars.

Fed clarity effectively sends a strong buy signal

20 Sep 2023

Benchmark US interest rates probably will hover around 5.5% for a while. A stable cost of capital gives companies, consumers and investors good reason to stop putting off decisions any longer. It should help resolve valuation ambiguities and restart M&A, IPO and housing activity.

New economic rules shatter US bonds’ crystal ball

19 Sep 2023

Government debt has been signaling a downturn for 440 days, but there’s been no recession. The famed predictive power of the yield gap between different vintages of Treasuries is waning. As the global economy evolves, warnings from the fixed-income markets can be safely ignored.

Sunak and Bailey agree on higher UK rates, for now

19 Sep 2023

The PM and the Bank of England chief both favour raising borrowing costs in the short run to curb price growth. But their paths may soon diverge. Downing Street would love easier monetary policy before an election in late 2024. The BoE cannot relent until inflation hits 2%.

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.