The Wall Street Journal (WSJ) said that the Fed is preparing for a giant step that raises 0.75 percentage points again this time following June. When the U.S. CPI was tallied at 9.1% in June on the 13th, the Fed’s 1% interest rate hike theory emerged rapidly. However, as the University of Michigan announced on the 15th that expected inflation had fallen, the possibility of a 1% rate hike was greatly reduced.
Fed officials are concerned that excessive interest rate hikes of giant step could have side effects, such as plunging the U.S. economy into a recession. Atlanta Fed President Rafael Bostick said in a forum hosted by the Tampa Bay Business Journal in Florida on the 15th, “If interest rates are raised too dramatically, unnecessary weaknesses can occur in the economy.”
Other executives also expressed anxiety over a 1%p rate hike. “A sharp rate hike could cause a slowdown in the U.S. economy,” said Esther George, president of the Kansas City Fed.
Meanwhile, the ECB, which had adhered to its monetary easing policy, is expected to hold a monetary policy meeting on the 21st and raise policy interest rates for the first time since the pandemic. Accordingly, the main Refinancing Operations Fixed Rate will be raised from 0.00% to 0.25%. The Bank of Japan (BOJ)’s financial policy-making meeting, which decided to maintain its existing monetary easing policy last month, is also drawing attention.
The Bank of Korea also raised interest rates by 0.5%p on the 13th, and Canada raised interest rates by 1%p on the 13th. Chile and the Philippines also raised interest rates by 0.75 percentage points on the 14th. On the 2nd, New Zealand’s central bank raised interest rates by 0.5%. On the 12th, the Hungarian central bank raised its key interest rate by 2.00%p. Hungary raised interest rates by 3.85 percent in just two months. In June, Australia, Norway, and Switzerland raised interest rates by 0.5%p.
“Now, 0.5%p is acting like a new 0.25%p in the market,” said Jane Foley, a senior foreign exchange manager at Labo Bank. “So far, the central bank has set the increase at 0.25%p when it normally raises interest rates, but now it considers 0.5%p as the basic increase.”
