Monetary Policy

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.

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.

Flood insurance swamps US government

11 Sep 2023

A federal scheme to back policies for water-logged homes is set to be renewed. Failing to do that would worsen a housing shortage. But the program is already laden with debt. Fixes like flood-prevention infrastructure can lower costs for the government and homebuyers alike.

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.

Central bank peanuts highlight China’s policy gaps

15 Aug 2023

A surprise rate cut failed to soothe markets rattled by a weak economy and property defaults. The People’s Bank of China is limited by thin bank margins and the risk of outflows. Loose monetary policy won’t help demand, if President Xi Jinping keeps ducking bolder fiscal action.

Russia’s jumbo rate hike leaves Putin in hot water

15 Aug 2023

A plunge in the rouble and the Kremlin’s prodding forced the central bank to raise borrowing costs by 3.5 percentage points. The currency’s muted reaction leaves the president with more bad choices: restrict welfare spending or hope that even tighter policy can curb inflation.

Rate jujitsu is no blow to Japan’s foreign assets

4 Aug 2023

The central bank’s shock tightening of monetary policy last week sparked fears investors would rush to repatriate the $5.4 trln of assets they hold overseas. Low yields at home and funds’ caution after years of disappointment will ease any tide. Big debtors like the US can relax.

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.

Inflation dip puts central bankers in a pickle

27 Jul 2023

The Federal Reserve and ECB once again hiked interest rates. Yet US price rises are easing with few signs of economic pain. In this Viewsroom podcast, Breakingviews columnists discuss how this phenomenon, dubbed ‘immaculate disinflation’, complicates what policymakers do next.

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.

New Aussie central bank boss faces two-front war

14 Jul 2023

Deputy Governor Michele Bullock is replacing Philip Lowe. She’ll wield less power in a more independent institution than her gaffe-prone predecessor. The inside pick offers stability as the Reserve Bank battles an economic slowdown and the prospect of El Nino-driven inflation.

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.

Why central banks cannot relax in inflation fight

4 Jul 2023

Western policymakers have frantically hiked interest rates to dampen consumer prices. In this Exchange podcast, Claudio Borio, a top official at the Bank for International Settlements, argues that rate-setters need to keep going to ensure costs of living won’t stay elevated.

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.

Bank of Italy pick will give Italy an EU headache

28 Jun 2023

ECB member Fabio Panetta is heading home to lead the national central bank. That will remove a dove from Europe’s rate-setters, just as they pursue a hard line on inflation. To send another Italian to Frankfurt, premier Giorgia Meloni may need to compromise on Brussels issues.

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.

ECB’s autopilot raises risk of hard landing

14 Jun 2023

The European Central Bank is set to hike rates on Thursday and again in July. But traders’ hopes for cuts soon afterwards may be dashed, given pressure from hardline countries to tame stubborn inflation. Europe’s recovery is looking increasingly fragile.

Fed’s rate hike habit will be hard to kick

13 Jun 2023

The US central bank is mulling a pause after raising interest rates at its last 10 meetings. In this Exchange podcast, Morgan Stanley chief economist Seth Carpenter lays out the calculus behind the Federal Reserve’s next move, and why it’s so hard for policymakers to pivot.