The Bank Of England And The Federal Reserve: Different Paths In The Fight Against Inflation
Date
9/19/2024 3:08:57 PM
(MENAFN- Investor Ideas) On September 18, 2024, the U.S. federal Reserve lowered the interest rate to 5%, a 50 basis point adjustment. This move reflects the Fed's policy of slightly easing financial conditions after an aggressive tightening period to control inflation. However, the bank of England may take a more cautious approach. The British institution is expected to keep its rate at 5% on September 19, 2024, with expectations of a possible cut in November of this year.
In the British context, in August 2024, the Bank of England reduced the interest rate from 5.25% to 5%. This move was a sign of moderate relief for an economy that has faced persistently high inflation since 2021. Despite this adjustment, the bank has warned that it does not expect inflation to fall below its 2% target until at least 2026. The most recent figures highlight the central bank's efforts to curb inflation, which peaked at 11.1% in 2022.
From 2021 to 2023, the Bank of England implemented successive interest rate hikes, raising it by 515 basis points to control runaway inflation. While the increases effectively reduced overall inflation, some sectors of the economy, such as services and wages, continue to face significant inflationary pressures, with increases exceeding 5%. This situation complicates a quick adjustment in monetary policy, as an overly aggressive move could hinder economic recovery.
Although overall inflation has moderated and is approaching the 2% target, price pressures in certain sectors pose challenges for monetary policymakers. The costs of services and wage increases, which still show accelerated growth, remain a significant concern for economists and the Bank of England. The lack of a quick adjustment in these key indicators makes any abrupt interest rate cuts difficult.
The United Kingdom's gross domestic product (GDP) has also been a critical factor in the central bank's decision-making. Data published in July indicated stagnant economic growth, with a result of 0.0% compared to the expected 0.2%. These results underscore the British economy's fragility, reinforcing the Bank of England's gradual approach concerning interest rate cuts and avoiding hasty decisions that could generate instability.
In conclusion, both the U.S. Federal Reserve and the Bank of England face a complex economic environment. Although both central banks have shown signs of monetary easing, they have done so cautiously to avoid imbalances in their economies. While the U.S. has made a more direct decision with a rate cut, the U.K. maintains a prudent approach, waiting for the right moment to make future adjustments that balance growth and inflation control.
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