Central bankers are reducing emergency support two years after the epidemic drove the global economy into a deep but brief recession — and they’re doing it faster than they or most investors expected. The era of easy money is coming to an end.
The Federal Reserve of the United States is expected to raise interest rates in March, and last Friday’s jobs report reinforced speculation that it would need to act quickly.
The Bank of England had recently announced two rate hikes in a row, and some of its officials wanted to go even further. The Bank of Canada will take to the skies next month. Later this year, the European Central Bank may join in the fun.
Policymakers believe that the global inflation shock currently poses a greater hazard than additional growth loss from Covid-19, thus rates are rising. Some argue that they waited far too long to come to that conclusion.
Others worry that the hawkish shift may stifle recovery while providing little respite from high prices, given that some of the increase is due to supply issues beyond monetary policy‘s control.
The People’s Bank of China, on the other hand, looks to be moving in the opposite direction. As new viral outbreaks and a property collapse cloud the outlook for the world’s second-largest economy, it’s likely to make lending more affordable.
The Bank of Japan is anticipated to maintain its policies unaltered this year, though traders are beginning to doubt its ability to do so.
Many central banks in emerging markets began hiking interest rates last year, and they haven’t stopped yet. Brazil just increased its criteria by 150 points for the third time in a row, while the Czech Republic increased its benchmark to the highest in the European Union.
This week, Mexico and Peru are anticipated to extend their tightening efforts, while others believe the Latin American cycle is nearing its end.
JPMorgan Chase & Co. economists predict that by April, rates in countries that contribute nearly half of the world’s gross domestic product would have risen to 6%, up from 5% presently.
They anticipate a global average interest rate of around 2% by the end of the year, which is similar to the pre-pandemic level.
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