Some of the world’s most prominent monetary policy leaders announced their latest decisions in their respective fights against persistent inflation. Most held rates steady, taking a breather from a historic pace of interest rate hikes to stabilize skyrocketing prices.
Here’s a breakdown of what happened.
United States: The Federal Reserve in September paused interest rates for the second time after first hitting the brakes in June. The central bank has hiked rates 11 times since last March. Its latest set of economic projections showed that more officials expect the Fed’s key lending rate to reach a range of 5.63%-5.87% this year — in other words, the central bank could hike rates one more time by year’s end.
The Fed also expects fewer rate cuts next year than previously expected, and lifted its expectation of economic growth this year while slightly lowering its unemployment rate projection.
“Monetary policy might be close to where it needs to be, but the current inflation data shows that the conditions are not quite there,” said Brian Henderson, chief investment officer at BOK Financial.
United Kingdom: The Bank of England halted its rate hiking cycle on Thursday for the first time in nearly two years. That comes after inflation declined unexpectedly last month and keeps the main borrowing cost for UK commercial banks at its highest level since 2008. But the Bank of England didn’t take future rate hikes off the table, stating that signs that inflation isn’t abating further could lead to more increases.
“Odds are the bank is done here, with policymakers downplaying [average weekly earnings] wage data and putting the onus of proof on the data to justify more tightening,” Evercore ISI strategists wrote in a note Thursday.
Switzerland: The Swiss National Bank left its policy rate unchanged at 1.75% on Thursday after five straight hikes but didn’t rule out future rate hikes if prices don’t continue to stabilize.
What does it all mean? While central banks took steps to pause interest rates this week, they kept future hikes on the table.
That means that stubborn inflation is still a global problem despite the progress that’s been made, says Nate Thooft, chief investment officer of multi-asset solutions at Manulife Investment Management.
His firm has a slightly outsized allocation in US stocks, since both the economy and corporate earnings have held up so far this year, but is considering trimming some of its exposure later if the tide shifts.
“There’s a real likelihood to get some volatility where you might get some rolling corrections in the equity markets,” said Thooft.
