It is quite probable that ultra-low rates will not happen ever again in any of our lifetimes
Jerome Powell knows the Fed made a huge mistake last year when it deemed inflation “transitory”
That is the background to its jumbo increase of 0.75 per cent in interest rates today. It is a decision that will reverberate around the world in the coming days and weeks, and it is one that affects us all. The dollar is soaring as a result, helping push the pound down to its lowest level since 1985 – a troubling backdrop to theThe euro is being pushed down too. But the Fed is far from alone in this drive for higher interest rates.
How high will rates go? The truth is that no-one knows, but in the US the markets expect it will be somewhere between four per cent and five per cent and the Fed projects that rates will peak at 4.6 per cent next year. For the UK the numbers are similar. After the last Bank of England meeting they calculated that it would push ratesI expect that they will jack up those projections next week when they assess the impact of the coming increase and of the emergency budget.
The US interest rate decision is directly the backcloth to the Bank’s decision on rates, but ultimately more important also to Kwasi Kwarteng’s emergency budget. He will borrow more money, and this pushes up the cost of financing the debt.
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