From Fed to BoE roundup of announcements from central banks



On Wall Street, futures on the main US equity indices reported a slightly downward trend, which can be explained by the umpteenth maxi rate hike by Jerome Powell's Fed and the central bank's determination to continue on the path of monetary tightening in order to bring inflation back to the 2% target.

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From Fed to BoE roundup of announcements from central banks

At about 2 p.m. Italian time, futures on the Dow Jones fell 0.08%; those on the S&P 500 fell 0.16%; those on the Nasdaq Composite fell 0.28%.

The Federal Reserve, the US central bank, raised its key US rates by 75 basis points, as expected, confirming its intention to proceed with further monetary tightening to combat inflation, which is at its highest level since the early 1980s.

Rates were raised in the range of 3% to 3.25%, a record high since 2008, with what was the third consecutive tightening of 75 basis points.

Watch out for the dot plot, the table summarising the rate direction projections of the Fed's monetary policy arm, the FOMC.

The dot plot shows that officials are targeting further rate hikes up to the terminal rate of 4.6 percent in 2023. The median estimate of the FOMC officials showed that Fed officials expect rates to rise to 4.4 per cent by the end of 2022. Powell & Co are therefore preparing to raise rates by up to 100-125 basis points by the end of the year at the two remaining FOMC meetings.

The dot plot also showed up to three rate cuts in 2024 and four more in 2025, which would bring longer-term rates down to a median of 2.9 per cent.

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"My main message has not changed since Jackson Hole," Fed number one Jerome Powell said in the press conference following the US rate announcement, "The FOMC is strongly determined to bring inflation back to 2 per cent, we will continue until the job is done.

"We need to put inflation behind us. I wish there was a less painful way to do it. There isn't,' the US central bank president admitted.

Today was a day in which the central banks took centre stage.

Haruhiko Kuroda's Bank of Japan continues to confirm itself as a white fly among the central banks of many other economies, which are busy averting and taming new inflation flare-ups.

Today, Japan's central bank confirmed its benchmark interest rates at the lowest level ever, i.e. -0.1%, which means that monetary policy is still based on the instrument of negative rates, which Christine Lagarde's ECB has now renounced with its monetary tightening.

By contrast, the era of negative rates is over in Switzerland, where the Swiss National Bank (SNB) raised its key interest rates to 0.5%, an increase of 75 basis points.

Inflation in Switzerland is currently at a three-decade high, reaching 3.5% last month.

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A short while ago came the Bank of England's announcement that it had raised the UK's key policy rate by 50 basis points, less than the 75-point tightening expected by several traders, to 2.25% from 1.75% previously.

The monetary tightening was the seventh in a row and took rates to a record high in the last 14 years, i.e. since 2008. The Bank of England announced today that it believes the UK is already in recession.

Yesterday, the Dow Jones Industrial Average slipped 522 points (-1.70%), after having jumped more than 300 points to its intraday highs; the S&P 500 lost 1.71%, the Nasdaq Composite fell 1.79%.

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