On Wednesday, the Federal Reserve made the decision to keep interest rates on hold, ahead of the Bank of England’s decision on interest rates at noon today.
The Federal Reserve’s rate target continues to be 5.25%–5.5%, which is the highest interest rate level in 22 years.
The Reserve aims to control surging prices, which have recently hit near-record highs.
The bank has been hiking borrowing costs with the goal of cooling down the economy and curbing inflation.
According to Susannah Streeter, head of money and markets at Hargreaves Lansdown, the decision to keep the rates stable alleviates worries that the Federal Reserve might push the economy into a recession if the monetary policy becomes too restrictive.
“For now, investors seem more confident that a goldilocks economy, not too hot but not too cool, will return to scare away the bears,”, she explained.
“Inflation is still elevated, but with long-term interest rates having surged and borrowing so much more expensive, these tighter financial and credit conditions are expected to push down demand going forward. Economic conditions could still deteriorate sharply, so this bout of confidence still risks being wishful thinking, but a steeper downturn would hasten rate cuts next year,”, she added.
The bank received some criticism, with some arguing that keeping interest rates high could jeopardise the US economy, potentially leading to a recession.
However, the Fed’s decision came slightly after the U.S. released the governmental data from the Bureau of Economic Analysis, which shows that the U.S.’s GDP grew by 4.9% in the July–September period, fueled by a tight job market and consumer spending.
On Thursday at 12, the Bank of England will also decide whether or not to keep interest rates on hold.
Interest rates in the UK are at their 15-year highest, and following the Fed’s decision, many expect the Bank to keep the rates on hold.
Commenting on the BoE, Susannah Streeter further said that “a jump in company insolvency rates and a housing market in the deep freeze are signals that the sharp hike in rates is already being keenly felt, and that’s even before the full effects come through. Inflation may still be at 6.7% at the last snapshot, three times the bank’s target, but upcoming data is expected to show it fell more markedly in October. Investors will be keen to sift through the Bank of England’s outlook to assess if the government’s ambition to halve inflation by the end of the year might be met.”