The foci of the global macroeconomic policy are this week on the most important central banks. Entities have made historical moves to control the incessant inflation in the world by generally raising interest rates, but this behavior already arouses fears of recession both in the market and in specialized analysts.
(Read: Stock markets around the world reacted to the Fed’s decision).
Preceded by eldest 28-year increase in the Federal Reservel (Fed) this Wednesday, from 75 basic points, the Bank of England (BoE, in English) and the Swiss National Bank (SNB) raised their interest rates this Thursday and gave hints about what their next decisions will be like.
The BoE made its fifth rate hike in a row, this time 25 basis pointsthus taking its reference rate to 1.25%, in a decision that had the vote in favor of six members, while the remaining three sought an increase of 50 basis points.
“Although the United Kingdom registers an annual inflation of 9.0%, reaching a maximum of four decades, it currently presents important risks on the growth side, in an environment of higher interest rates, higher taxes, disruptions to trade due to global dynamics and the Brexit, among others”, explained Sergio Taborda, international economist at Banco de Bogotá’s Economic Research.
The BoE confessed that they expect a inflation of 11% for October, when the limit of the regulated price of electricity is raised and, with a view to the second quarter, a contraction of 0.3% of GDP, which casts a shadow over the future.
“Once again, the markets and the central bank are taking drastically different views on the rate outlook. The BoE appears poised to slow things down as markets expect multiple large hikes in the coming months.”, commented Craig Erlam, senior market analyst for the UK and EMEA at Oanda.
On the other hand, the biggest surprise of the day came from the Swiss National Bank with an increase of interest rates of 0.50%the first since 2007, and placing the reference in a range between -0.75% and -0.25%.
recession fears
Although Jerome Powell, president of the Fed, yesterday ruled out seeing signs of the weakening of the US economy, the truth is that the market today is interpreting that the risk of a recession is -much- closer.
According to an exercise by Bloomberg Economics, the risk of a recession in the first quarter of 2024 climbed to 72%.
For Goldman Sachs, 72% of investors expect the United States to enter a recession in 2022 or 2023, compared to 66% who considered it in May.
“To the extent that inflation is a global phenomenon, most central banks are adjusting their rate upwards, taking it to neutral or contractionary levels. This will surely result in economic slowdown and in some cases in recession. In addition, higher interest rates in the world are associated with tighter financial conditions, which explains the behavior of the markets in recent days”, said Sergio Taborda, from Banco de Bogotá.
(Keep reading: Rate hike in Europe creates uncertainty in markets).
This Thursday Wall Street fell with the Nasdaq (-4.08%); the S&P 500 (-3.68%) and the Dow Jones (-2.42%).
ROBERTO CASAS LUGO
