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As expected, the US Federal Reserve (Fed) paused interest rates yesterday. After ten consecutive interest rate hikes by the central bank since March 2022, the policy rate remained in the range of 5.00-5.25 percent. Today, Thursday, the European Central Bank (ECB) made its interest rate decision: it raised the key interest rate to a new 4 percent for the eighth consecutive year.
Why did the Fed raise interest rates?
Because the three main inflation indicators announced by the government (consumer price index, producer price index and personal consumption expenditures index) have cooled considerably since inflation peaked in the summer of 2022. In addition, the Fed wants to give itself time to properly analyze the effects of accumulating rate hikes. The increase in guiding principles always comes to economic life with a delay of six to nine months.
Why didn’t the ECB stop interest rates?
The inflation rate fell surprisingly sharply in May. Core inflation (excluding food and energy costs) was 5.3 percent, a four-month low. Despite this, inflation in the euro area is still very high. That’s nearly three times the target inflation rate of two percent.
What’s next for the ECB?
Analysts and investors unanimously expect further increases in July, which will likely be the last for now. After that, a rate pause is expected, but rate increases do not have to end.
What is SNB doing next week?
The Swiss National Bank (SNB) takes into account inflation, the economy, exchange rates and global economic and financial developments when making its interest rate decisions. The interest rate decisions of other central banks also belong to the latter.
Consumer prices in Switzerland rose 0.3 percent again in May. Compared to the same month of the previous year, inflation was 2.2 percent. The State Secretariat for Economic Affairs (Seco) predicted “well below average growth in the Swiss economy” for this year, at 1.1 percent. Energy prices are also falling further, but inflationary pressure is still high. At 2.2 percent, inflation is moderate by international comparison, but still exceeds the SNB target.
As a result, the market expects the SNB to raise interest rates again by 0.25 percentage points to 1.75 percent on June 22. Does it stay there after that? Suspicious. The SNB certainly doesn’t want to tighten the interest rate screw too much because that could hurt the economy too much.
Does the interest rate decision have implications for housing finance?
The SNB’s final rate decision next week will likely have direct ramifications primarily for Saron mortgage holders, as the Saron rate follows interest rate action at a 1:1 ratio. After the SNB rate hike, Saron mortgages are likely to become more expensive than fixed rate mortgages due to the rate hike, when the time comes.
Source :Blick
I’m Tim David and I work as an author for 24 Instant News, covering the Market section. With a Bachelor’s Degree in Journalism, my mission is to provide accurate, timely and insightful news coverage that helps our readers stay informed about the latest trends in the market. My writing style is focused on making complex economic topics easy to understand for everyone.
