Citing elevated inflation and a strong labour market, the Federal Reserve (Fed) indicated on Wednesday that raising interest rates “will soon be appropriate”. The central bank is under pressure to curb inflation as prices in the US are soaring at the fastest pace in almost 40 years. Analysts expect a rate hike in March, which would be the first since 2018.

At a press conference following Wednesday’s monetary policy meeting, Fed chair Jerome Powell did not say how fast or how high US interest rates would rise. But he said officials were “of a mind” to raise the bank’s key rate in March, adding that he was confident the bank could take action without hindering the economic recovery.

Meanwhile, eurozone business activity growth slowed for a second consecutive month in January as the spread of the Omicron variant took an increasing toll on the currency bloc’s economy. The IHS market flash composite Purchasing Managers’ Index (PMI) slid to an 11-month low of 52.4 in January, from 53.3 in December. The score was forecast to fall to 52.6. A reading above 50.0 indicates expansion in the sector.

 Although a relief of supply chain delays provided a welcome boost to manufacturing production, renewed COVID-19 restrictions led to a noticeable slowdown in service sector growth. Indeed, the services PMI came in at 51.2, down from 53.1 in the prior month and economists’ forecast of 52.2. Meanwhile, the manufacturing PMI rose unexpectedly to 59.0 from 58.0 a month ago. The score was forecast to come in at 57.5.

Finally,Ba in Germany, business confidence improved at the start of the year as companies expect the disruptions from the Omicron variant to ease in the coming months, survey results from the Ifo Institute showed on Tuesday. Ifo’s business climate index rose to 95.7 in January from a revised of 94.8 in the previous month. The reading was forecast to remain unchanged at 94.7. The current situation index came in at 96.1, down from 96.9 in December, while the expectations index advanced to 95.2 in January from 92.7 in the previous month. The expected score was 93.0.

“The German economy is starting the new year with a glimmer of hope,” Ifo president Clemens Fuest said.

Company executives were considerably more upbeat about their business outlook while their assessment of the current situation was a bit less optimistic, Fuest added.

This article has been prepared by Bank of Valletta plc for general information purposes only.

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