Having paused its cycle of interest rate increases in June, the Federal Reserve raised rates by 25 basis points in July to a range of 5.25% to 5.5%. The Fed has now increased rates by 525 basis points since March 2022. The annualised rate of US consumer price inflation subsided from 4% in May to 3% in June, fuelling hopes that the Fed might be approaching the end of its tightening cycle.
- Interest rates rose in the US and eurozone
- The eurozone’s economy grew by 0.6% in Q2
- The BoJ tweaked its yield curve control policy
Fed tightens again: having paused its cycle of interest rate increases in June, the Federal Reserve (Fed) raised rates by 25 basis points in July to a range of 5.25% to 5.5%. The Fed has now increased rates by 525 basis points since March 2022. The annualised rate of US consumer price inflation subsided from 4% in May to 3% in June, fuelling hopes that the Fed might be approaching the end of its tightening cycle. Nevertheless, any rate cuts appear to be some way off: Fed Chair Jerome Powell commented: “We’d be comfortable cutting rates when we’re comfortable cutting rates”.
“We’d be comfortable cutting rates when we’re comfortable cutting rates” (Fed Chair Jerome Powell)
Recession no longer on the cards? The US economy grew at an annualised rate of 2.4% during the second quarter of 2023, compared with growth of 2% in the first quarter, and Fed officials are no longer forecasting a recession . The Dow Jones Industrial Average Index increased by 3.3% in July, while the technology-heavy Nasdaq Index continued its climb, rising by 4% over the month.
Is the ECB set to pause? The European Central Bank (ECB) raised its key interest rate by 25 basis points to 3.75%, representing its ninth consecutive rate increase. Although inflation remains a headache for policymakers – who warned that it is “expected to remain too high for too long” – ECB President Christine Lagarde indicated that central bank officials might decide to pause their current tightening cycle at their next meeting in September. The eurozone’s rate of inflation fell from 5.5% in June to 5.3% in July, but core inflation remained static at 5.5%. The Dax Index ended July 1.9% higher.
Lagarde sanguine on GDP growth: in an interview with French newspaper Le Figaro, President Lagarde described recent data on economic growth in Germany, France and Spain as “quite encouraging”. The eurozone’s economy expanded at an annualised rate of 0.6% during the second quarter of 2023. The International Monetary Fund (IMF) expects the euro area to grow by 0.9% this year and 1.5% next year.
BoJ adjusts yield curve control: the Bank of Japan (BoJ) adjusted its yield curve control policy during the month in response to intensifying inflationary pressures, and raised its outlook for core inflation from 2.5% to 3.2% for the 2023 fiscal year. The Nikkei 225 Index fell by 0.1% over July.
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