The impact of shifting monetary policy | December 2021
As the global economy moves back to pre-pandemic levels and inflation accelerates, central bankers are under increasing pressure to reverse easy monetary policy. Central banks in South Africa, Russia, New Zealand and Mexico have already raised interest rates this year to contain overheating risk, but all eyes are on the Federal Reserve, ECB and Bank of England.
The US has already laid the groundwork to raise rates over the next year or so. In November, the Fed started to taper its asset purchases and expectations are currently for a rise in interest rates later in 2022. President Biden’s recent reappointment of Jerome Powell as Fed chair increases the chances of this outcome.
The Bank of England defied expectations by not raising rates in November. It cited uncertainty over strength of the labour market post-furlough. Some of these concerns will have been allayed by subsequent data. Given annual CPI inflation is now running at a decade high 4.2%, the final hurdle has probably been cleared for the BoE to hike rates at its next meeting on 16 December.
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This episode was recorded on 29/11/2021
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The Pulse from Smith & Williamson
Investment Show: The impact of shifting monetary policy
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