Interest rates

2022 - 9 - 22

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Image courtesy of "The Guardian"

Bank of England raises interest rates to 2.25%, its highest since 2008 (The Guardian)

Threadneedle Street raised its key base rate for the seventh consecutive time, judging the risk of inflation becoming persistently embedded in the economy ...

However, the Bank warned the impact of the government’s support measures risked adding to inflationary pressure. It aims to reduce its portfolio of gilts to £758bn over the next two years. Although the consumer prices index eased slightly from 10.1% in July, reaching 9.9% in August, it remains at a level not seen since the early 1980s and is almost five times the Bank’s 2% target rate. “While the guarantee reduces inflation in the near term, it also means that household spending is likely to be less weak … Three members of the MPC – Dave Ramsden, one of the Bank’s deputy governors, and the external members Jonathan Haskel and Catherine Mann – pushed for a tougher 0.75 point increase owing to mounting concerns about inflation becoming entrenched. Three members of the MPC voted for an increase of 0.75 percentage points, five backed a half-point rise and one pushed for a more limited quarter-point move.

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Image courtesy of "Financial Times"

Bank of England lifts interest rates by 0.5 percentage points (Financial Times)

UK rate-setters hold back from more aggressive increase but hint of large rise in November.

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Image courtesy of "Business Plus"

Bank of England and Fed pump up interest rates again - Business Plus (Business Plus)

America's Federal Reserve raised interest rates again by a further 0.75% yesterday, the Bank of England boosted its rate by just half a percent.

Deutsche Bank senior economist Sanjay Raja commented: “The Bank of England delivered in line with expectations. Sterling fell to its lowest level against the dollar since 1985 following the Fed’s decision. Evans added: “Interest rate markets are now also pricing in a 75bps hike at the next meeting in November, while there are still more than ten hikes priced in by the middle of next year. A gentler approach to rate rises risks sending sterling into a tailspin, and seeing inflation get even further out of control. “I wish there were a painless way to do that. “The MPC will feel its hand was forced.

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Image courtesy of "CNBC"

Historic rate hikes mark the largest 6-month increase in 41 years ... (CNBC)

The Fed's benchmark rate is rising at its fastest clip since 1981. Here's what financial experts say that means for your money.

[according to Suze Orman](https://www.cnbc.com/2022/06/09/suze-orman-no-1-investment-tip-for-right-now-the-series-i-bond.html): series I bonds. "If your card has a 22% interest rate, it's the same as earning 22% on your investment after tax." The bonds must be purchased directly from the Treasury's website, and you can invest no more than $10,000 per person per calendar year. Because there are complicated investments, you'd be smart to consult a financial planner before buying, says LaVigne. Generally, longer-maturity bonds come with a longer duration, meaning that they'll decline more in value in response to hikes in interest rates. If you buy before the end of October, you'll get an interest rate of 9.62%. Further hikes to interest rates won't affect a fixed-rate car loan you may have, and the same goes for fixed rate mortgages. If you're a long-term stock investor, "you want to make sure you're not panicking," says Lavigne. You're better off continuing to make periodic investments and not trying to time the market." The numbers back then were a little more extreme: From the end of July 1980 through January 1981, the federal funds rate bounced from 9% up to an eye-watering 19%, Altogether the national average rate on savings accounts is just 0.13%. The uptick is the third consecutive 0.75 percentage point move and the fifth increase in the last six months — all part of an effort by the central bank to cool runaway inflation.

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Image courtesy of "The New York Times"

Central Banks Raise Interest Rates, Fearing Worse Pain Later (The New York Times)

Federal Reserve officials and their counterparts around the world are trying to defeat inflation by rapidly raising interest rates.

But now, it’s as if the room is on fire: The threat of a stubbed toe still exists, but moving slowly and cautiously risks even greater peril. Now is the time for monetary policymakers to put their heads up and look around.” And that is translating into forceful action now, regardless of the imminent and uncertain costs. [Markets have swooned ](https://www.google.com/search?q=sp+500&rlz=1C5GCEM_en&oq=sp+500&aqs=chrome.0.69i59j35i39j0i67i131i433l4j0i131i433i512j0i67i131i433j0i131i433i512j0i67i131i433.934j1j7&sourceid=chrome&ie=UTF-8)this year in response to the tough talk coming from central banks, reducing the amount of capital available to big companies and cutting into household wealth. [Switzerland’s central bank](https://www.cnbc.com/2022/09/22/swiss-central-bank-hikes-interest-rate-as-inflation-pressures-hit-hard.html) ended the era of below-zero interest rates in Europe. But that does not mean that the policy path the Fed and its counterparts are carving out is unanimously agreed upon — or unambiguously the correct one. And in the United States, where the fallout from the war is far less severe, hiring and the job market remain strong, at least for now. The longer that remains the case, the greater the risk that it is going to become a permanent feature of the economy. The wave of central bank action is expected to have consequences, working by design to sharply slow both interconnected commerce and national economies. The European Central Bank is [ similarly expected](https://www.reuters.com/markets/rates-bonds/ecb-must-keep-raising-rates-despite-downturn-schnabel-says-2022-09-22/) to continue raising rates at its meeting in October to combat high inflation, even as Russia’s war in Ukraine throws Europe’s economy into turmoil. “A lot of this comes down to judgment, and how much emphasis to put on the 1970s scenario.” The interest rate increases taking place from Washington to Jakarta will need months to filter out across the global economy and take full effect.

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