Central banks tighten policy as global slowdown risk looms
The Reserve Bank of Australia is expected to raise rates for a fifth time, while the US Fed held rates steady and the Reserve Bank of New Zealand kept its cash rate unchanged amid warnings of a possible abrupt global downturn.
Central banks in several major economies are moving to tighten monetary policy as inflation remains elevated and concerns grow over a potential sudden global slowdown. The Reserve Bank of Australia is widely expected to increase its cash rate for a fifth time at its November meeting, a move that would lift the rate to around 4.85 percent, the highest level since the global financial crisis. Westpac chief economist Luci Ellis said inflation is still too high and noted that, although the Reserve Bank of New Zealand highlighted risks of a rapid economic weakening, those risks are not the base case for the Australian central bank.
The Reserve Bank of New Zealand surprised markets by leaving its overnight cash rate at 2.75 percent, a decision that came with a statement warning that rising global long-term yields could signal a higher neutral interest rate and that “higher global interest rates could bring forward a potential global downturn.” The bank said new information over the next six weeks could “meaningfully change” its stance on rates.
In the United States, the Federal Reserve voted 10-2 to keep its target range at 3.75-4.00 percent, citing the need for additional data. Two members, Governor Lisa Cook and Cleveland Fed President Beth Hammack, voted for a 25-basis-point hike. Fed Chair Kevin Warsh said inflation remains “too high” but emphasized that the decision was not influenced by politics ahead of the midterm elections.
Canada’s central bank raised its benchmark overnight rate by 25 basis points to 2.5 percent, its first hike in three years, aiming to curb the risk that high energy prices spread to other goods and services. The bank warned that inflation may not return to its 2 percent target until mid-2028.
Markets are pricing a high probability of further rate increases in both Australia and the United States later this year, while also monitoring signs of slowing economic activity, such as declining purchasing-manager indexes, a housing market slump, and rising unemployment.