Central banks to unveil further 'aggressive' interest rate hikes

Many economists predict the British and eurozone economy will contract next year, although parts of the eurozone such as Ireland will likely escape recession.  

The consultancy also believes that all the major central banks will keep their eyes focused for a while to come "on tightening policy and cooling price pressures" which will lead to "further aggressive hikes in interest rates in the US, eurozone, and UK over the coming months". 

The European, British, and US central banks will unveil further "aggressive" hikes in interest rates in the coming months, as they step up their fight to get a grip on inflation, a leading economics consultancy has predicted

Capital Economics predicts that the US central bank will sanction a further increase of three quarters of a point in its key rates next month and only stop when rates reach as much as 4.75%. 

The consultancy also believes that all the major central banks will keep their eyes focused for a while to come "on tightening policy and cooling price pressures" which will lead to "further aggressive hikes in interest rates in the US, eurozone, and UK over the coming months". 

The prediction comes despite expectations that the IMF during its annual meeting in Washington this week will step up its warning about the growing chances of a global recession as the economy buckles under inflation pressures.        

Many economists predict the British and eurozone economy will contract next year, as central banks add to the pain facing households and businesses, although parts of the eurozone such as Ireland will likely escape recession.  

The European Central Bank and the US Federal Reserve will also be looking at services inflation for fear that price pressures are spreading well beyond the prices for energy and food, economists say.     

On Monday, food and energy prices markets reacted to the escalation of the war in Ukraine over the weekend. Wheat prices in the US surged to the highest price in more than three months as Russia’s attack on Kyiv and other Ukrainian cities fuelled worries that an escalating war will stymie agriculture exports out of the Black Sea.

“We cannot rule out further food-security issues if any of the key world producers have production difficulties or the situation in the Black Sea region does not improve,” Hightower Report analysts said in a note to clients. Any slowdown out of the Black Sea could boost prices for global food staples, which had recently been retreating.

The prices of European wholesale gas also shot higher, reversing a trend of sharply lower prices last week. The price for gas for delivery in December climbed by almost 5.5% to €176 per megawatt hour. 

Global share prices also sold off on the prospects of hefty interest rate hikes and the war in Ukraine.                

“But the fresh outrages in Kyiv are another reminder that European markets face an even tougher winter than those in the US, despite the massive support being provided (for energy bills) by governments," said Chris Beauchamp, chief market analyst at online trader IG. 

"The bounce is already fizzling out, with more pain for European stocks ahead this quarter,” Mr Beauchamp said. 

The Ftse-100 shed almost 0.5%, but many shares in Dublin ended the session higher.  International packaging giant Smurfit Kappa ended 7% higher, while house builder Glenveagh Properties shed 2.25%. 

Additional reporting Bloomberg