Global Interest Rates Soar Amid Inflation Fears
Four major central banks made rate decisions within three weeks of each other in September. Three of them, including the European Central Bank and the Federal Reserve, raised interest rates. The European Central Bank hiked to 2.50%, while the Fed followed with its first rate rise since 2023, moving to a target range of 3.75% to 4.00%. The Bank of Japan also raised its policy rate to 1.25%, its highest level since 1995.
The only exception was the Bank of England, which held rates steady in a split decision that went 6-3 against raising them. However, this decision was overshadowed by a year's worth of persistent inflation, driven largely by oil prices tied to the conflict in the Middle East.
US headline CPI rose 3.4% year-over-year in August, unchanged from July. Core CPI, which strips out food and energy, rose 0.3% month-over-month, above the 0.2% expected and the fastest monthly pace since April. Producer prices ran even hotter: PPI climbed 5.4% year-over-year, above forecasts.
The combination of these numbers sent a signal that price pressure wasn't cooling as earlier-year forecasts had assumed. This shift in expectations moved markets ahead of the Fed's meeting, with bonds, the dollar, and gold getting ahead of the announcement rather than being surprised by it.