In a widely expected move, the US Federal Reserve announced last Wednesday that it will start rolling back its unprecedented COVID-19 stimulus programme later this month. This marks the Fed’s first major pull-back since the programme was launched in March 2020.
As the pandemic brought the US economy to a virtual halt and hammered the employment market, the Fed froze interest rates at near zero and began buying $120 billion worth of Treasury and mortgage-backed securities each month.
“It is time to taper, we think, because the economy has made substantial progress towards our goals,” Fed chairperson Jerome Powell told reporters during Wednesday’s press conference. The programme will probably wrap up entirely by June 2022. But for now, interest rates will remain close to zero.
Separately, the Bank of England surprised analysts as it backed away from an immediate rise in interest rates, leaving the benchmark rate at the historic low of 0.1 per cent even as it published its highest inflation forecast for a decade, predicting it would reach five per cent in the spring of next year.
Seven members of the Monetary Policy Committee voted to leave the key interest rate unchanged at 0.10 per cent, while two others sought a 15 basis point rate hike, the bank said in a statement on Thursday.
The Bank of England surprised analysts as it backed away from an immediate rise in interest rates.- Bank of Valletta
The bank’s Monetary Policy Committee said that higher interest rates would be needed “over coming months”. But the level of urgency was scaled down compared with Governor Andrew Bailey’s comments during October that the committee “will have to act” to restrain inflation.
Finally, producer price inflation in the eurozone increased in September, data from the EU’s statistics office Eurostat showed on Thursday.
Producer price inflation rose to 16.0 per cent in September from 13.4 per cent in August. Economists had forecast an annual rate of 15.2 per cent. Excluding volatile items such as food, energy and tobacco, producer price inflation rose to 8.1 per cent in September from 7.4 per cent in the previous month. Energy prices shot up by 40.7 per cent from last year.
On a monthly basis, producer prices rose by 2.7 per cent in September, following a 1.1 per cent increase in the preceding month. Economists had forecast a rise of 2.2 per cent.
This report was compiled by Bank of Valletta for general information purposes only.