Global Central Banks Tighten as Energy Price Shock Looms
Major central banks worldwide are tightening their monetary policies in response to the energy price shock. The Federal Reserve, led by Chairman Kevin Warsh, recalibrated its policy stance on Wednesday, signaling a more restrictive approach.
The Fed's decision was made despite traders pricing in a more aggressive policy response than projected in the central bank's so-called dot plot. Economists warn that markets are overestimating future rate increases due to concerns about the oil shock worsening after the Houthis seized a strategic stretch of Red Sea coastline, a move seen as signaling a more assertive stance by Iran-backed militia.
The Reserve Bank of Australia has hiked interest rates three times this year to 4.35%, undoing last year's cuts. Markets are broadly expecting another hike at their meeting later this month. Norway's Norges Bank is likely nearing the end of its hiking cycle, with one more quarter-point hike priced in by year-end.
The Bank of England kept rates steady on Thursday but sounded an alarm on inflation, warning that prolonged conflict in the Middle East may require tighter policy. Markets were pricing in at least one rate hike from the BoE this year with a chance of another.