Europe’s central banks continue to raise interest rates

The US Federal Reserve Chairman Jerome Powell said Thursday that the Central Bank would raise interest rates at a “cautious pace” as policymakers near the end of their monetary tightening cycle. According to Powell, the “point” of keeping rates unchanged at last week’s Fed meeting was precisely to slow the pace at which the Fed was raising borrowing costs. Investors now expect rate hikes to resume in July, with the Fed possibly assessing the need for further hikes every second meeting. But Powell said he shares his colleagues’ broad economic outlook for moderate economic growth, a slight increase in unemployment, and a slow decline in inflation for the rest of the year.

According to Powell, it was this outlook that made most policymakers feel that one or two more rate hikes would be enough to end the Fed’s battle with inflation. Federal Reserve Chief Michelle Bowman said the US central bank needs to keep raising interest rates to lower inflation, adding her voice to those policymakers who want to resume raising rates after a break in last week’s tightening campaign.

Tesla (TSLA) shares plummeted by 5.5% yesterday, the biggest daily drop in two months. Analysts at Barclays downgraded the company’s stock, citing the fact that the value of the paper has severely departed from its fundamentals and averages (TSLA stock has risen 80% since the beginning of May).

Norway’s Central Bank raised its key rate by 50 basis points (bps) to a 15-year high of 3.75% on Thursday in a bid to curb inflation and said it is aiming for another rate hike in August, predicting the rate will rise to 4.25% in the fall. Core inflation in Norway rose to 6.7% in May, a record high and above the Central Bank’s forecast of 6.0%.

The Bank of England, citing the resilience of inflation, surprised markets by raising the rate immediately by 50 bps to 5%. Seven representatives out of 9 voted for such a decision. The Bank of England promises to monitor the situation closely and is ready for further monetary policy tightening in case of more sustainable price growth.

The Swiss National Bank (SNB) raised its discount rate by 25 basis points to 1.75%, as expected, while sending a very hawkish signal. Since the central bank expects inflation to remain stable for some time, another 25bp increase is expected in September. The SNB has revised its inflation forecasts. It is expected to average 2.2% in 2023, 2.2% in 2024, and 2.1% in 2025. The SNB also does not expect any slowdown in inflationary pressures and believes that the current situation is likely to continue. This signals growing concern about the long-term prospects for inflation.

Asian markets were mostly down yesterday. Japan’s Nikkei 225 (JP225) decreased by 0.92% for the day, China’s FTSE China A50 (CHA50) and Hong Kong’s Hang Seng (HK50) were not trading, and Australia’s S&P/ASX 200 (AU200) ended the day down by 1.63%. Most Asian stock markets continued to fall on Friday as the Bank of England’s rate hike heightened fears of monetary tightening, while lower consumer inflation in Japan also worsened sentiment.