The 24 Hours of Hikes That End Year of Fighting Inflation

(Bloomberg) — The world’s biggest banks this week ended the most aggressive year of interest rate hikes in four decades and their fight against inflation is far from over even as their economy slows.

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The US Federal Reserve on Wednesday is set to raise its key rate by 50 points to a range of 4% to 4.5%, the highest since 2007, and to indicate further increases in early 2023.

The following day, the European Central Bank and the Bank of England are likely to follow by half a point. And higher borrowing costs are also available for cards in Switzerland, Norway, Mexico, Taiwan, Colombia and the Philippines.

The year ends very differently than it began. Back in January, most policymakers were admitting that they were wrong to bet on inflation until 2021 soon, but thought they could keep prices down with policy pressure.

Instead, several metrics show how double-digit global inflation has forced them to squeeze harder:

  • Bank of America Corp. has seen about 275 price increases this year, enough for each trading day, and just 13 decreases

  • More than 50 central banks have made 75 extraordinary increases, some joining the Fed in doing so repeatedly.

  • The Bloomberg Economic gauge of global rates is expected to end the year at 5.2%, up from 2.8% in January.

Although there are increasing signs that inflation has increased significantly in many areas, the big question now is what will happen in 2023.

The worst-case scenario is that inflation proves stubborn and a recession sets in, triggering an inflationary slowdown for central banks. The best hope is for consumer price growth to slow down fast enough to allow policymakers to stop raising prices and consider lowering them to boost growth.

While many investors expect a pivot at some point, Fed Chairman Jerome Powell and ECB President Christine Lagarde, both of whom will speak this week, said their focus remains on inflation even if doing so disrupts demand and hiring.

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Federal Reserve

While the Fed is expected to begin slowing the pace of monetary policy tightening this week with a halving, the target overnight bank lending rate will continue to be raised through early 2023.

Another 50-basis point hike would bring the rate to 4.25 percent over 2022, a year that has pushed inflation to a fourteen-year high and left policymakers scrambling.

Fed officials, who concluded their two-day policy meeting on Wednesday, will get a final peak on a key inflation metric when the government on Tuesday releases the consumer price index for November. Economists project a 0.3% increase in the overall and core measure excluding food and fuel. Every year, both gauges are seen to moderate.

The European Central Bank

The ECB will probably raise rates by 50 basis points, after inflation in the euro area was lowered for the first time in 1 1/2 years. But with consumer price growth still at 10%, a third consecutive move of 75 cannot be completely ruled out and some hawkish rate-setters have suggested they may reverse such a move. The Governing Council’s decision will be influenced by the new quarterly forecast, which will see a slowdown in growth and an improvement in inflation forecasts for 2023.

In addition, policymakers are scheduled to decide on key pillars of their debt relief plan of nearly $5 billion ($5.2 trillion). The actual program – known as quantitative tightening or QT – will not start until next year, with economists expecting it to start in the first quarter.

Bank of England

The BOE is widely expected to raise its benchmark lending rate by half to 3.5%, which would be the highest since 2008. With inflation at a 41-year high of 11.1% and consumers increasingly expecting higher prices in the next few years, the policy. producers led by Governor Andrew Bailey said they will take strict measures to prevent the increase in the price of wages.

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The bleak economic outlook makes this month’s decision even more difficult than last. The recession is now underway and is expected to continue until 2024, and households are suffering from the worst cost of living on record. Energy prices are six times higher than normal, and colder than normal weather is hitting the UK for the first time since last winter.

Swiss National Bank

Switzerland is also facing inflation, but at 3% – less than a third of the euro around the area – SNB policymakers will choose a half-point move instead of repeating the 75 basis-point rate of September.

A strong franc – for years a thorn in the side of SNB President Thomas Jordan – is now supporting the economy as it allows Switzerland to avoid rising foreign prices. The central bank may reiterate that it is prepared to intervene in financial markets if necessary.

Norges Bank

Norway’s central bank is set to raise its key rate by 25 points as last month’s inflation data showed a headwind and lower inflation. Those numbers have allowed speculation about a major increase in borrowing costs to return, with some analysts more confident that the December increase will be the last of the cycle.

Other recent data releases highlighting the unfavorable economic outlook since the financial crisis have also supported this view, as Norges Bank’s latest forecast from September shows a higher rate of 3% in the winter, indicating an additional quarter increase early next year.

Mexico and Colombia

The central banks of Mexico and Colombia this week brought the curtain down on an unprecedented year for monetary policy in Latin America.

If the two decisions of the week are in line with the forecasts, the main inflation of Latin America aimed at central banks will have increased the rate by 30.75 percentage points cumulative in 2022, setting a new annual mark in the way of 40 inflations, four suspensions and no reductions.

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The central bank of Mexico, known as Banxico, estimated to raise its main rate in the 13th meeting directly to 10.50% and a half increase. While headline inflation is higher and returning to the 3% target, the headline reading remains above 8%. The consensus among analysts has Banxico’s terminal rate at 11% after additional consolidation at the beginning of 2023.

On Friday, look for the Banco de la República to post its third straight 100 basis-point hike and the 11th straight general rate hike at 12%. Economists see this as the end of the cycle on foot although some analysts put the top 100 score as high as 13%.

Elsewhere in the World Economy

The Hong Kong Monetary Authority will go into lockstep with the Fed, due to the monetary peg, which means another rise in prices, while central banks in the Philippines and Taiwan are also predicted to rise.

The Bank of Russia is expected to hold rates steady on Friday, its latest round of easing as inflation risks grow. The Kremlin is issuing contracting GDP smaller than expected this year, but the central bank has warned that new G-7 restrictions on oil sales could hit output as they kick in next year.

Beyond the central bank, markets will be watching data coming out of China, where sales, investment and industrial figures due on Thursday are set to show a strengthening of the economic struggle in November as Covid Zero restrictions – now being improved – are weighed against activity.

–With assistance from Vince Golle, Robert Jameson, Malcolm Scott, Craig Stirling, Ott Ummelas and Gregory L. White.

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