Central banks increase rates once more as the Fed fights inflation

In a coordinated effort to combat global inflation that is upending financial markets and the economy, several central banks from all over the world increased interest rates once more on Thursday.
Japanese officials intervened to strengthen the yen for the first time since 1998 on Thursday after traders drove the currency to a record low versus the dollar.
Japan, the anomaly among the major industrialised countries, had kept interest rates unchanged on Wednesday.
The Fed set the tone on Wednesday with a rate hike of 0.75%, its fifth since March, and within hours, 12 other central banks from Norway to Indonesia followed suit with increases of a similar amount, frequently adding guidance pointing to further action.
They are battling inflation rates that range from 3.5% in Switzerland to almost 10% in Britain.
This is because demand has increased since the pandemic subsided, but supply has lagged, especially from China, and prices for fuel and other essentials have increased as a result of Russia’s invasion of Ukraine.
While central bankers were emphatic that taming runaway price increases were their top priority right now, they were also bracing for the negative effects their measures would have on the economy, as climbing borrowing costs are known to reduce investment, hiring, and consumption.
The Fed predicted that the economy would contract to a halt and that unemployment would increase to a level historically associated with a recession, a scenario that is also becoming more likely to materialise in the Eurozone and is viewed as highly probable in Britain.
Despite the economy approaching a recession, the Bank of England hiked rates and pledged to “act strongly, as necessary” against inflation.
Emma-Lou Montgomery, associate director at Fidelity International, stated this will result in yet another round of dramatically increased expenses for borrowers and still little meaningful control over the skyrocketing cost of living.
Investors braced themselves for a world where expansion will be limited and access to credit will be more difficult, sending world stocks close to a two-year trough and developing market currencies plunging.
The European Central Bank is almost certain to raise interest rates again on October 23 as a result of market players raising their rate expectations for the institution.
It is currently anticipated to increase its own interest rate from 0.75% to approximately 3% the following year.
To maintain its shaky economic recovery, Japan chose to keep interest rates close to zero.
However, many analysts feel that given the global shift toward higher borrowing costs, Japan’s situation is becoming increasingly precarious.
Haruhiko Kuroda, the governor of the Bank of Japan, declared following the decision that their position of keeping an easy monetary policy again for time being has not changed at all. Interest rates won’t be increased for a while.
However, the decision caused the yen to crash against the dollar, forcing the Japanese government to intervene and buy the home currency to stop the decline.
Despite inflation running at more than 80% on Thursday, Turkey’s central bank continued its unconventional policy by announcing another surprise interest rate decrease, driving the lira to a record low against the greenback.
Meanwhile, on Thursday, Wall Street’s major indexes fell for a third straight day as a result of declines in the technology and banking sectors, as investors feared that the Federal Reserve’s assertive policy to control inflation may lead to a recession.
In a year that has already experienced bear markets in both asset classes, the Fed raised rates by an anticipated 75 basis points on Wednesday and projected a lengthier trajectory for policy rates than the ones the markets had anticipated. This increased concerns about future volatility in the stock and bond markets.