By strategyandbusiness.net

Global interest rates have been rising faster than expected in the past two months, and the US Federal Reserve and European Central Bank (ECB) policy rates are now likely to peak later in the day, and higher than anticipated levels in September, said a report by Fitch Ratings.

The result of “very high” inflation and the central bank’s tightening determination to reduce it makes a move towards cutting rates in 2023 “unlikely”.

Fitch expects the fed funds rate to rise 50 basis points to 4.5% in December and then by 25 basis points at each of its February and March 2023 meetings to remain at 5% for the remainder of 2023.

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The rate on the ECB’s main refinancing operations is now expected to rise 50 basis points to 2.5% in December and then a further 25 basis points at the Governing Council meetings in February and March 2023. The rate remains at 3% for the remainder of 2023.

The Bank of England (BOE) is now expected to raise the base rate by 50 basis points in December to 3.5% and then by another 125 basis points to a maximum of 4.75% in December.

“The Federal Reserve, ECB and BOE have been raising interest rates rapidly over the past two months, with all three raising rates by 75 basis points at their last meetings. Inflation is proving very high, despite weakening global energy and food prices in recent months and a marked reduction in supply chain pressure on global consumer goods markets, the rating agency said.

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Rising services inflation is “a major concern” as it indicates that pressures are becoming more entrenched and self-reinforcing.

In addition, wage growth has also been high, particularly in the US and UK, reflecting “tight labor markets with historically low unemployment and a high job opening ratio” per unemployed person.

In this context, Fitch believes central banks are increasingly determined to push interest rates to a ‘controlling’ level (ie above their expected ‘neutral’ rate, which does not increase or decrease aggregate demand) in the coming months.