ECB Raises Interest Rates by a Historic 0.75 Point as Europe Stares at Recession

[mahatmakanejeeves]

Source: The Wall Street Journal.

ECONOMY

ECB Raises Interest Rates by a Historic 0.75 Point as Europe Stares at Recession

European Central Bank intensifies fight against inflation even as Europe’s prospects darken amid economic war with Russia

By Tom Fairless
https://twitter.com/TomFairless
[e-mail]
Updated Sept. 8, 2022 8:29 am ET

FRANKFURT—The European Central Bank said it would raise its key interest rate by 0.75 percentage point, the biggest increase since the early days of Europe’s monetary union, moving aggressively to combat record inflation even as an energy crisis puts Europe on the brink of recession. ... The bank said in a statement that it would increase its key rate to 0.75% from zero—its second hike this year following a 50-basis-point rise in July—and signaled that further rises were likely this year.

The increase mirrors recent moves by other major central banks, including the Federal Reserve, which is expected to unveil a third successive 0.75-point rate rise later this month. Canada’s central bank raised its policy rate on Wednesday by 0.75 percentage point to 3.25%, a 14-year high. (1)

Rising borrowing costs will likely increase the risk of a slide into recession for Europe’s currency union, which is wrestling with surging energy costs and sagging confidence among households and businesses, driven by the war in neighboring Ukraine. With governments piling on debt to shield consumers and businesses from the impact of rising prices, a national election in Italy later this month could exacerbate strains in the region’s bond markets. ... Still, the ECB’s move should help to support the euro currency, which recently sank to a 20-year low against the dollar, a loss of value that is making imports more expensive and aggravating inflation. ... Investors will turn to ECB President Christine Lagarde’s news conference, starting at 8:45 a.m. ET, for clues as to the bank’s next policy steps.

Inflation in the 19-nation eurozone has surpassed U.S. levels in recent weeks as Russia’s actions have curtailed Europe’s energy supplies and driven up prices. Eurozone inflation increased to 9.1% in August and is expected to rise toward 10% over the coming months, as some government energy and public-transport subsidies expire, especially in Germany. ... Despite that, the ECB’s policy rate is significantly below those of other major central banks, including the Fed, which is expected to increase its benchmark rate later this month to a range between 3% and 3.25%.

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(1) https://www.wsj.com/articles/bank-of-canada-raises-rates-to-14-year-high-11662561117

Read more: https://www.wsj.com/articles/ecb-raises-interest-rates-by-a-historic-0-75-point-as-europe-stares-at-recession-11662639573

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The European Central Bank raised interest rates by 0.75 percentage point, stepping up its fight against inflation even as Europe stares at a likely recession

wsj.com
ECB Raises Interest Rates by a Historic 0.75 Point as Europe Stares at Recession
The European Central Bank raised its key interest rate by 0.75 percentage point, moving aggressively to combat record inflation even as an energy crisis puts

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[mahatmakanejeeves]

1. Bank of Canada Raises Interest Rates to 14-Year High

WORLD | CANADA

Bank of Canada Raises Interest Rates to 14-Year High

Central bank says rates need to increase further to return inflation to 2% target

By Paul Vieira
Reporter, Ottawa Bureau, The Wall Street Journal
https://twitter.com/PaulVieira
[e-mail]
Updated Sept. 7, 2022 10:58 am ET

OTTAWA—The Bank of Canada delivered another hefty increase to its main interest rate, taking it above 3% for the first time in over 14 years, and said rates need to go higher to tame inflation.

The Bank of Canada on Wednesday lifted its overnight target rate by 0.75 percentage point to 3.25%, following a surprise full-percentage-point increase in July. Following five increases beginning in March, the central bank’s benchmark interest rate is now 3 percentage points higher than where it started 2022, reflecting the urgency among global central banks to cool inflation triggered by supply-chain disruptions, stronger-than-expected consumer demand and the war in Ukraine.

The last time the Bank of Canada’s benchmark rate was 3% or higher was in April 2008. In a statement explaining its decision, the central bank said the benchmark rate will need to climb higher to ensure inflation decelerates toward its preferred 2% target.

The most recent consumer-price index report in Canada indicated annual inflation slowed in July to 7.6% from a four-decade high of 8.1%. The central bank said the deceleration was the result of lower gasoline prices. With the exception of gasoline, the Bank of Canada added, upward price pressures are broadening across the economy. ... The central bank said indicators measuring domestic demand—such as household consumption and business investment—were very strong based on second-quarter data.

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[nowforever]

2. Raising interest rates is stupid

Current inflation caused by pandemic and resultant economic impacts. War in Ukraine has exacerbated that. Raising interest rates in this environment is like setting your house on fire because you need to warm up. Economists just need to study 1918 pandemic and subsequent global recovery understand how to handle current inflation issues. Letting production and supply chains move naturally to demand as pandemic eases is what you do...essentially let things settle and readjust without outside manipulation is the smart thing...but when do humans ever do that.