Central Banks Converge on Rate Hikes Amid Inflation and Energy Pressures

Central banks around the world are shifting gears and raising interest rates to combat inflation and high energy costs. The US Federal Reserve, European Central Bank, and soon Japan's Bank of Japan will all contribute to this tightening of monetary policy.

The Fed was first off the block on Wednesday, increasing its benchmark rate by 0.25 percentage points for the first time in over three years. This brings the federal funds rate up to a range of 3.75%-4%. The decision was unanimous under new Chairman Kevin Warsh's leadership.

The Fed also raised its inflation forecast for next year to 3.7%, up from 3.6% in June, and doesn't expect inflation to return to its 2% target until 2029.

Across the Atlantic, the European Central Bank had already begun a return to monetary tightening with a rate hike of its own last week, taking its deposit rate to 2.5%. President Christine Lagarde emphasized that the bank will make decisions based on economic data from one meeting to the next.

The Bank of Japan is expected to follow suit this Friday by raising its interest rate for the first time in three years, bringing it up to a level not seen since 1991. If price pressures persist, policymakers may be willing to further increase borrowing costs, according to sources familiar with discussions within the bank.