Not long ago, the big debate was over who would raise rates first, the U.S. Federal Reserve or the Bank of England. Now with the Fed giving clear signals it’s on the brink of hiking and the BoE appearing to be pushing that day further off into the future, one could naturally conclude that the inflation outlook in both economies is vastly different.
Sweden’s Riksbank left its negative interest rate steady at -0.35 percent on Wednesday and increased its bond purchase programme by another 65 billion crowns (just under 7 billion euros). It also said it could cut rates again if needed.
With Bank of England policymakers ready at a moment’s notice over the past several years to warn anyone who will listen that a rate rise is closer than we think or just around the corner or soon coming into sharper relief, the main instrument it targets – inflation at 2 percent – is having nothing of it.
British workers have hit a sweet spot with wages rising much faster than near-zero inflation, suggesting the economy could gain further momentum as consumers spend their spare cash.
Inflation may be far off target but economists are convinced the United States Federal Reserve and the Bank of England will soon begin raising rates from near zero – with the Fed poised to act as soon as Thursday.
The Japanese yen has strengthened unexpectedly by about 4 percent over the last month and it could rise further if the U.S. Federal Reserve delays a rate hike and the dollar weakens.