The Bank of England is predicted to make only one more increase to Bank Rate, taking it to 5.50% in September, despite other major central banks halting rate hikes, as the BoE struggles to control inflation.
President of the European Central Bank, Christine Lagarde, stated that interest rates in the European Union will need to remain high to combat inflation, despite progress being made, emphasizing the challenges posed by disruptions in the global and European economies.
Boston Federal Reserve President Susan Collins advocates a patient approach to policymaking and believes that more evidence is needed to determine if inflation has been tamed, stating that the Fed may be "near or even at the peak" for interest rates but further increases could be necessary depending on data outcomes.
Inflation in Britain slowed for a third consecutive month in August, defying expectations of a rise due to higher fuel prices, with consumer prices rising 6.7 percent compared to the previous year, driven by slower increases in food prices and a decline in hotel room costs. Core inflation also fell more than anticipated, indicating a potential easing of inflationary pressures, though price growth remains uncomfortably high. The Bank of England is set to announce its decision on interest rates, with growing speculation that rates may be held steady due to signs of slowing inflation and a weak economy.
Federal Reserve policymakers Governor Michelle Bowman and Boston Fed President Susan Collins expressed the need to keep interest rates elevated to combat inflation, with Bowman suggesting further rate hikes will likely be needed to bring inflation down to the Fed's 2% target and Collins stating that further tightening is not off the table as progress in battling inflation has been slow.
The head of the European Central Bank, Christine Lagarde, stated that interest rates will remain high to combat inflation, despite acknowledging the impact it has on homeowners with variable interest rate mortgages, as upward pressure on prices persists in the eurozone.
The Bank of England has been criticized for failing to predict high inflation, prompting a review of its forecasting models, with comparisons showing that alternative models have outperformed the bank's predictions in recent years, potentially exacerbating the inflation situation. The author suggests that the bank should be more transparent and open about its models and consider holding a prediction tournament to improve forecasting accuracy.
The Federal Reserve and Bank of England have decided to keep interest rates unchanged, but have left the possibility open for further increases to combat inflation.
U.S. Federal Reserve Governor Michelle Bowman believes that inflation is still too high and that the central bank may need to tighten monetary policy further to reach their 2 percent inflation goal in a timely manner.
UK inflation remains high at 6.7%, above the Bank of England's target, while rising fuel prices and a weakening job market continue to put pressure on households; however, average wage growth outpaced inflation for the first time in two years, and state financial support is available to low-income households.
High inflation is expected to persist in the global economy next year, posing a risk of interest rates remaining higher for longer than anticipated, according to a Reuters poll of economists. While some central banks were initially predicted to start cutting rates by mid-2024, the survey suggests that a growing number of economists are now pushing the more likely date into the second half of next year.
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