The biggest fear of the US central bank (Fed), and not only, is related to inflation.
A collective move to look beyond the pandemic’s decline into the risk of accelerating inflation came with the Fed’s warning that it could soon start tightening its bond purchases, with the prospect of the Bank of England (BoE) raising interest rates even soon. this year, despite the latest disappointing economic data, and five other increases by central banks around the world, writes Bloomberg.
Meanwhile, the European Central Bank is waiting for the Fed to take the first step towards raising interest rates, with its officials largely saying they are still more concerned with supporting the fragile recovery. They insist that a reduction in incentives announced on September 9 is not the kind of “tapering” that could appear soon in the US, informs Mediafax.
Until December, the Fed could narrow its support and look at an interest rate hike, with other central banks planning their own withdrawals. At the same time, the eurozone could discuss the future direction of its stimulus program, with another form of bond purchase as a possible outcome to combat the region’s economic weakness.
“The ECB expects the pre-pandemic problems to persist for a while, so it needs to be more cautious about withdrawing incentives,” said Neville Hill, an economist at Credit Suisse Group. “The bank will act much slower than the Fed or the Bank of England.”
Although global cost pressures have pushed up inflation in the euro area as well, strategies there remain more optimistic than in other countries about its future direction. The ECB chief recently said she expects inflation to stabilize next year.
Asked when she thinks the ECB will raise interest rates relative to the Fed, she said she has no idea why the two banks operate different programs, according to CNBC.
Several Fed strategists have called for accelerating inflation as a reason to start raising interest rates next year, Bloomberg writes. The tightening of incentives could come with the next monetary policy meeting in November, the bank’s president, Jerome Powell, recently announced.
As for the Bank of England, after disappointing economic data in September, with the British private sector having its weakest month since last winter’s lockdown, has put it in a dilemma over when to announce the tightening of incentives in conditions of accelerating inflation, it decided to open the door to future interest rate increases this year.
The Bank of England mentioned the prospect of raising interest rates even in November to control the accelerated rise in the inflation rate, which is expected to exceed 4% following the dramatic rise in energy prices.
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