Pushpin makes the point that the BoE and Fed find themselves on a knife edge for future decisions and which might well introduce and exacerbate inflation which will impact all.

I would add there is also the not insignificant point that Banks’ safety could well be made worse if we consider the chain of interest rates —> bond values —> bank balance sheets —> bank capital adequacy.

Pushpin Singh is an economist at the CEBR picked up on reaction.life

The US Federal Reserve (Fed) raised interest rates by 25 basis points bringing its federal funds rate to a range of 4.75% to 5.00% on Wednesday evening. This marks the second straight quarter-point rise in base interest rates, bringing the federal funds rate to its highest level since 2007. Meanwhile, following the latest meeting of its Monetary Policy Committee (MPC), the Bank of England (BoE) today increased its base rate by 25 basis points to 4.25%. Seven of the nine committee members voted for today’s rise, with two preferring to keep the rate the same. The base rate is now at its highest level since November 2008, when it stood at 4.5%.

If the Fed and/or the BoE are forced to halt interest rate hikes prematurely in response to the fallout from the banking crisis, there is a possibility of upticks in the rate of inflation in the coming months. Consequently, central banks, including the Fed and the BoE find themselves in a precarious position, and will be monitoring developments in the banking sector closely to determine whether the banking system turmoil may have a disinflationary impact, and whether there is a need to curb interest rate rises. Nonetheless, the higher interest rates announced today combined with a possible worsening of access to credit due to banking problems paint a difficult picture for business activity, a key contributor to GDP growth