Weekly Digest: Fed, BoE, ECB Raise Rates, U.S. Inflation Cools
17/12/22: Central banks raised interest rates, with more increases to come, U.S. inflation cooled more than expected in November, Russia rejected a "Christmas ceasefire" after nearly 10 months of war in Ukraine. And more.
💡Quote of the Week
“Inflation data received so far for October and November show a welcome reduction in the monthly pace of price increases. But it will take substantially more evidence to have confidence that inflation is on a sustained downward path.” Fed Chair Jerome Powell
🇺🇸 U.S. inflation still high but cooled more than expected in November. Consumer prices rose 7.1% annually in November, down from 7.7% in October, according to the Bureau of Labor Statistics report. The November CPI numbers marked the fifth-straight monthly decline and were better than economists’ expectations of 7.3%. (CNBC)
“Cooling inflation will boost the markets and take pressure off the Fed for raising rates, but most importantly, this spells real relief starting for Americans whose finances have been punished by higher prices,” said Robert Frick, corporate economist with Navy Federal Credit Union.
🏦 The Fed raised interest rates half a point to the highest level in 15 years. Along with the hike came an announcement that the bank expects to keep rates higher through next year, with no reductions until 2024. (CNBC)
During a news conference, Chairman Jerome Powell said it was crucial to continue fighting against inflation so that the expectation of higher prices does not become entrenched.
💵 Stronger dollar. The U.S. dollar rose on Thursday after the Fed said it would deliver more interest rate hikes next year and ahead of meetings of the Bank of England and the European Central Bank. (Reuters)
Meanwhile, the euro fell 0.67% to $1.0611, and the sterling lost 0.9% to $1.2316, both falling from six-month highs hit this week.
Also, the dollar strengthened versus the Swiss franc and Norwegian crown after their respective central banks started a day full of meetings, with the Swiss rates rising 50 basis points and the Norwegian rates rising 25 basis points.
⭐ Gold price down. The gold price fell more than 1% on Thursday, falling to its lowest in a week, as the dollar strengthened following the Fed's announcement of higher interest rates for longer.
“The tone was certainly very hawkish from the Fed in terms of the rate rise than some market participants expected, and that has definitely spooked gold. We are seeing slightly exaggerated moves, but the broad theme is the dollar is up, interest rates are rising, and that’s a headwind for gold,” said independent analyst Ross Norman as quoted by Reuters.
📉 Dow futures drop. Stock futures fell sharply Thursday after the Fed's latest policy update, as investors worried the central bank could tip the economy into a recession. (CNBC)
Futures tied to the Dow Jones Industrial Average dropped 402 points or 1.17%. S&P 500 futures fell 1.4%, and Nasdaq 100 futures lost 1.7%.
🏦 🇬🇧 In the footsteps of the Fed. The Bank of England raised interest rates on Thursday to 3.5%, the highest level in 14 years, with further increases expected. (FT)
“The labor market remains tight, and there has been evidence of inflationary pressures in domestic prices and wages that could indicate greater persistence,” BoE governor Andrew Bailey said in a letter, adding that inflation, which edged down to 10.7% in November, “has reached its peak”.
🏦 🇪🇺 In line with U.S. and U.K. policymakers. ECB raised interest rates to 2%, its highest level since the global financial crisis in 2008, and warned of more to come. (FT)
“Interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive to ensure a timely return of inflation. Inflation remains far too high,” the ECB said.
Eurozone inflation fell from a record high of 10.6% in October to 10% in November, giving investors hope that price growth will slow and the ECB will stop raising rates early next year.
📸 Image of the week
🇩🇪 Germany's half-trillion-dollar “energy bazooka” might not be enough to keep the lights on. "How severe this crisis will be and how long it will last greatly depends on how the energy crisis will develop. The national economy as a whole is facing a huge loss of wealth." (Reuters)
"The German economy is now in a very critical phase because the future of energy supply is more uncertain than ever," said Stefan Kooths, vice president at the Kiel Institute for the World Economy.
What else is happening
🛑 No “Christmas ceasefire.” Moscow rejected Zelenskyy’s proposal to start withdrawing Russian troops from Ukraine by Christmas as a step to end Europe’s biggest conflict since World War Two. The Kremlin said Ukraine must accept the loss of territory to Russia before any progress can be made. (CNBC)
Ukraine and Russia are not currently engaged in talks to end the war, which has killed tens of thousands of people, displaced millions more, and destroyed cities ever since Russia invaded its neighbor on February 24.
🦠 Remember Covid? Scientists found that the currently dominant omicron subvariants are “barely susceptible to neutralization” by the vaccines, including the new omicron boosters, which could result in a surge of infections. (CNBC)
“Together, our findings indicate that BQ and XBB subvariants present serious threats to current COVID-19 vaccines, render inactive all authorized antibodies, and may have gained dominance in the population because of their advantage in evading antibodies,” the scientists wrote.
🏧 🏅 Hide your PIN: India launched its first-ever gold ATM, issuing gold coins at the click of a button in a country that traditionally views gold as a safe investment. (Reuters)
Located in Hyderabad, India, the gold ATM dispenses gold coins weighing between 0.5 and 100 grams. A 100-gram coin is worth around $7,000.
See you next week!