Global Economy Braces for Higher Interest Rates Amid Energy Crisis

The global economy is bracing for another round of interest rate hikes as energy costs continue to soar, prompting central banks in major economies to take action.

The US Federal Reserve raised its target range by a quarter percentage point to 3.75-4 percent on September 16, with all 12 voting members backing the move. Fed Chairman Kevin Warsh said, 'The plain fact is that inflation is too high and has been for too long.'

The Bank of Japan voted 7-2 to raise its policy rate from 1 percent to 1.25 percent on September 18, citing high oil prices and a weaker yen as contributing factors. The bank signaled further rate rises, while saying financial conditions would remain supportive of economic activity.

Meanwhile, the Bank of England warned that persistent energy price pressures could require it to follow suit with interest rate hikes, despite keeping its benchmark at 3.75 percent on September 17. The bank's policymakers were divided, with three members favoring a quarter-point rise.

The European Central Bank had already raised its deposit rate by a quarter point to 2.5 percent on September 10, citing inflation pressures from the Middle East conflict. Its latest forecasts put eurozone inflation at 3 percent this year and 2.5 percent in 2027, above its 2 percent target.