Central banks in no rush to cut interest rates

NEW YORK

Investors were hoping to hear central banks finally signal last week that they were close to being done raising interest rates in their battle against inflation.

Instead, policymakers indicated that high rates are here for a while yet, with more hikes on the cards and few, if any, cuts in the near future.

The Federal Reserve set the tone on Sept. 20 when it paused its rate-hike campaign but caused a stir by leaving the door open to another increase before the end of the year.

The central bank also unsettled investors by saying that only two cuts were expected next year instead of four as anticipated.

The Fed has more room to keep its "hawkish" stance as the U.S. economy has performed better than feared despite the rate increases.

This firm position is shared by other central banks.

This firm tone came "as a surprise to the markets," which have "decided that the peak" of rate hikes is "happening right now," HSBC economist Fabio Balboni told AFP, even though "central banks' communications leave the door open to the possibility to further hikes".

It leaves "real uncertainty about the level of inflation next year", he said.

Their decision "reflects a compromise between growth and inflation," he added.

Faced with this dilemma, the European Central Bank (ECB) chose inflation-limiting measures, with a 10th consecutive rate hike.

"Our future decisions will ensure that the key ECB interest rates will be set at sufficiently restrictive levels for as long as necessary," the bank's chief economist Philip Lane said.

There are other signs, however, that rates are reaching their peak.

The Bank of England on Thursday announced its first pause on raising rates since December 2021, following a slight decline in UK inflation in August.

Switzerland and Japan - like half of all central banks - have also chosen to halt raising rates in the past 10 days.

"We expect no more rate hikes in the future" for the U.S., England and Europe central banks, said Balboni.