After a series of meetings on Wednesday and Thursday, the US Federal Reserve (FED), European Central Bank (ECB) and Bank of England chose to cut their disinflation strategies to half a point from the recent 0.75 percentage point rate hike model. Switzerland, Norway, Mexico and the Philippines also slowed the rate of increase in interest rates. The Financial Times (FT) newspaper, which wrote that Central Banks will face much more difficult elections next year, emphasized that the statements made by MB Presidents have become much more “strong” while the action slowed down. Last week, the Fed said there was “more work to be done” to beat hyperinflation, the ECB “more room to take”, while the BoE insisted it must be “strong” in tackling price increases. In the analysis in the FT, the reason for these explanations is;
Seth Carpenter, who has served at the Fed for 15 years and is currently chief global economist at Morgan Stanley, noted that most central banks are approaching their peak policy rate, which is likely to cause a sharp slowdown or recession in their economies. Stating that Central Banks should take responsibility for macroeconomic stability, Carpenter said, “That’s why they now say that they are ready to increase rates more with harsh statements, rather than saying ‘we were wrong, more increase is needed'”. While the reasons behind high inflation are different in the eurozone, the UK and the US, economists pointed out that all three central banks face the same difficult communication challenge for 2023.
The prints did not disappear
Headline inflation has almost certainly peaked and will fall next year, but officials are unsure if the underlying inflationary pressures will go away, according to experts. According to the analysis in the FT, there are concerns that it will take too long for inflation to return to the target level and may remain stable at a fairly high rate. Some of the concerns about future inflation in Europe are also fueled by the view that there is still time for the 2022 energy shock to have a full impact on the economy.
All three central banks are concerned that wages in countries are rising at rates higher than they believe are in line with the inflation target.
Risks, concerns and messages
At this point, the most important question stands out as what will be the main strategy of central banks in 2023, while headline inflation is falling. Many economists believe that policymakers want to act aggressively before inflation falls far enough and economic conditions become too difficult for further rate hikes. But many economists also worry that the hawkish voices from central banks are real and that the decisions taken will create a much deeper recession than politicians expect.
“These divergent views between those who say central bankers have shown appropriate concerns about continued inflation risks and those who believe the harsh messages are real and excessive show how difficult it is to forecast the economic outlook for 2023. “Central banks have not had to overcome a severe inflation crisis in 40 years, and no one knows whether the authorities have done too little, enough, or too much with interest rates to restore price stability.”
Kovid-19 outbreak developments in China are in the focus of the agenda
On the Asian side, developments regarding the Kovid-19 outbreak in China last week remained at the center of the agenda, while the economic data announced in the region continued to present a weak outlook. In China, retail sales fell 2.2 percent year on year in November, below forecasts, pointing to continued weak consumer demand. On the other hand, the US administration has blacklisted 36 Chinese technology companies, including Chinese chip maker Yangtze Memory Technologies.