Federal Reserve poised to cut rates for first time since 2020
- Chairman Jerome Powell has hinted at a cut
- Central banks try to ease the burden on lenders
- Borrowing costs were raised to combat rising inflation
The US central bank is set to cut interest rates this week, but British policymakers are expected to be more cautious.
The Federal Reserve is expected to cut interest rates on Wednesday — the first time since 2020.
Chairman Jerome Powell has hinted at a cut as central banks seek to ease the burden on lenders. Borrowing costs were raised to combat rising inflation, which peaked at 9.1 percent in the U.S. two years ago.
Data last week showed consumer price inflation fell to 2.5 percent in August from 2.9 percent in July, beating forecasts for 2.6 percent. It was last lower in February 2021.
But economists believe the bank will be cautious, fearing that a dramatic cut risks triggering inflation again. There are mixed predictions over whether the bank will opt for a 0.25 percent or 0.50 percent cut.
Downtrend: Chairman Jerome Powell has hinted at a rate cut as central banks seek to ease the burden on lenders
The Bank of England’s next rate meeting comes after the Fed on Thursday. The Monetary Policy Committee (MPC) is expected to vote for no change after announcing a cut last month
Barclays analysts expect the bank to keep rates at 5 percent and that “the tone of the minutes will remain cautious, while acknowledging that further progress is being made towards a sustained return of inflation to target.”
They predict a cut in November, December and February, and then again in May and August, bringing the rate to 3.75 percent in August 2025.
Matthew Ryan of international financial services firm Ebury said: ‘While MPC members will no doubt be encouraged by the recent progress on inflation, we suspect the Bank will need further cooling in the labour market, in particular a sustained easing of wage pressures, before committing to an aggressive pace of austerity.
“The statement may signal the likelihood of a rate cut in November, although we think it will maintain the line that rates will not be cut ‘too quickly or too much.'”
UK inflation data for August is also due on Wednesday. The headline inflation rate – consumer price index (CPI) – rose 2.2 percent in the year to July – higher than the 2 percent recorded in June, which is the Bank’s target level.
Inflation was 11.1 percent in October 2022, the highest level in 40 years.
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