Central Banks Raise Rates as Inflation Lingers

The world's central bankers are moving in lockstep to tackle persistent inflation, prompting investors to prepare for higher interest rates.

Last week, the Bank of England kept its benchmark rate at 3.75%, despite market expectations that it would hike rates soon. In contrast, other major central banks, including the Federal Reserve, have raised their rates to combat inflation.

The Fed's decision was seen as a significant statement from its new leader, Kevin Warsh, who reassured markets that he is committed to controlling inflation. The dot plots, which signal rate-setters' intentions, point to one more rate hike this year and no cuts in 2027. Inflation is not expected to return to the 2% target until 2029.

The AI spending boom continues to drive the economy, with significant investments in data centres, semiconductors, and power grids. However, if this boom were to end, higher rates would quickly bite in the rest of the economy.