Brief examination of economic changes ...
Global Economics Intelligence executive summary, September 2022
October 11, 2022 | Article
Central banks sustain aggressive policy tightening; industrial activity picks up in emerging economies; financial-markets uncertainty works to strengthen the dollar.
ed by the US Federal Reserve, most central banks are now following a tightening course, increasing interest rates to fight inflation. With 75-basis-point hikes in September, the Fed and the European Central Bank (ECB) brought policy interest rates to ranges of 3–3.25% and 0.75–1.50%, respectively. Fed officials expect these rates to exceed 4% in 2023. For the ECB, the September hike was the largest in its history. ECB president Christine Lagarde and members of the ECB rate-setting council have signaled strongly that further hikes can be expected in the remaining two meetings of the year (Exhibit 1).
The policy makers have repeatedly stated that they are determined to bring down inflation, which was 8.3% in the United States in August and reached 10% in the eurozone in September (Exhibit 2). Business leaders share the concern, as suggested by the results of McKinsey’s latest global survey on economic conditions. Respondents from most regions cited inflation as the main risk to their home economies.
This battle against inflation, and the resulting change in policy direction, is fueling uncertainty in a crisis-weary global economy. Financial markets reacted quickly to interest-rate rises. Volatility indexes of traded assets uniformly increased, and most equity markets declined. Government bond yields climbed, and wary investors shifted wealth to dollar-denominated assets. The US dollar strengthened to historic levels against the pound and the euro. In Britain, where inflation is near 10%, the Bank of England (BoE) raised its key interest rate to 2.25%. The vulnerability of large economies to any additional shock was then starkly .... '
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