After 11 hikes since March 2022, the Fed held interest rates steady for a second meeting in a row, leaving its key rate at a 22-year high of 5.25-5.5%. While the central bank left open the possibility of another hike if its fight against inflation stalls, it acknowledged that the recent sharp rise in Treasury yields reduces the need to raise interest rates again. That suggests the Fed may be done with its most aggressive monetary tightening cycle in almost a half-century, with traders betting we won’t see any more hikes.
Consumer prices in Europe rose by just 2.9% in October from a year ago – down from 4.3% the month before and lower than the 3.1% estimated by economists. What’s more, that’s the slowest rate of consumer price gains since July 2021. Core inflation, which excludes the more volatile energy and food prices and is closely watched by the European Central Bank (ECB), also fell more than expected – to 4.2%, down from 4.5% the previous month.
The falling price pressures come after ten consecutive ECB interest rate hikes, which have been bringing inflation down by slowing consumer spending and business investment, and unfortunately also creating a knock-on effect for economic growth. Case in point: data last week showed the eurozone economy shrank by 0.1% last quarter from the one before, which was worse than the 0% “stagnation” level that was expected.
The BoE held interest rates steady for a second meeting in a row, leaving its benchmark lending rate at a 15-year high of 5.25% and saying it’s still much too early to be thinking about rate cuts. And for good reason: Britain’s inflation rate is still triple the central bank’s 2% target, and is the highest among the Group of Seven nations. And though the BoE’s rate hikes haven’t obliterated the country’s inflation, as intended, they do appear to be doing a number on its economic growth. That’s got the central bank warning that the economy might stagnate over the coming year, raising new doubts about how long it could hold rates at the currently elevated levels.
In Japan, the BoJ decided to allow the 10-year government bond yield – a key long-term interest rate – to exceed 1%, marking the second revision to its yield curve control program in three months. The Bank has been under increasing pressure to adopt a less stimulative monetary policy stance, as it’s faced a weakening yen, rising bond yields, and above-target inflation. On that last point, the BoJ recently revised its core inflation forecast upward to 2.8% for the 2024 fiscal year, from its previously forecast 1.9%.
Manufacturing activity in Asia, which makes much of the world’s goods, took a hit in October. The latest manufacturing purchasing managers’ indexes (PMIs) showed activity shrank last month as countries including Japan and South Korea felt the squeeze from rising costs, reduced production, and fewer new orders. Meanwhile, a private gauge of factory activity in China unexpectedly shrank, highlighting the fragility within the world’s second-biggest economy.
