Central banks will continue to avoid aggressive rate hikes as the recession knocks on the doors of their economies while their actions are already easing inflationary pressures. Economists agree with this assessment after the latest meetings of the main central banks, as well as after the latest data indicating a slowdown in US inflation to 7.7% in October from 8.2% in September. Thus, the markets are raising the likelihood that the next move by the ECB, the Fed and the central banks of England, Switzerland and Canada will be a 50 basis point rather than 75 basis point hike, and they predict an even smaller hike next year. The Governor of the Bank of France and the Executive Director of the Board of Directors spoke in support of their assessments. ECB President Francois Villeroy de Gallo told Reuters yesterday that the ECB will continue to raise interest rates, but aggressive increases will not become the norm.

According to a related article in the Financial Times, the numbers pointing to a slowdown in growth and contraction of GDP are constantly rising. S&P Global business activity indexes have shown a slowdown in the US, UK and Eurozone since October, while the global new orders index fell to its lowest level since the spring of 2020, at the height of the pandemic. Similarly, consumer confidence is at historic lows in many countries as inflation and rising borrowing costs forced households and businesses to freeze spending. At the same time, economists and international organizations are revising their growth forecasts for advanced economies in 2023 and predicting a recession for Germany, Italy and the UK. A flurry of negative data and forecasts is leading economists to believe that no further aggressive rate hikes are in sight.

The next time the ECB and the Fed are expected to raise interest rates by 50 rather than 75 basis points. An even smaller increase is projected for 2023.

Speaking to the Financial Times, HSBC economist James Pomeroy cited statements from major central banks that he interpreted as a “clear signal” that “we are approaching a period of softer interest rate hikes, similar to what we have seen in Australia, Canada and Norway”. Similarly, Jennifer McKeon, chief economist at Capital Economics, opined that monetary policy makers believe that aggressive interest rate hikes have begun to affect consumer prices. He even added that “we expect central banks to slow growth due to a combination of a weakening economy, de-escalating inflationary pressures, and the fact that interest rates are already above equilibrium levels, that is, those that do not limit growth and do not stimulate his”. Capital Economics estimates that most of the at least 20 central banks it monitors will raise interest rates by 50 basis points. or even as little as 25 m.w.

As the FT notes, hawkish central bankers prevailed in the fall, leading to a series of rate hikes we’ve seen for decades. Since August, the 20 largest central banks have raised interest rates by almost 11 percentage points in total. The exception is the Bank of Japan, which has not raised interest rates over the past 15 years and does not expect them to increase in the near future, as well as the central banks of Russia and Turkey, which have reduced the cost of borrowing. During the same period, only the ECB, the Fed, the Bank of England and Canada raised rates by 5.5 percentage points, and each of these central banks made at least one increase of 75 basis points. As regards, in particular, the Fed, it has not made a decision to increase by 75 bp. after 1994, and since June it has increased by this size four times in a row. Thus, dollar interest rates now range from 3.75% to 4%. For its part, the ECB also carried out two increases of 75bp. in September and October, raising the key deposit rate to 1.5% and recording the most aggressive turn towards restrictive monetary policy in its 24-year history.