An era is coming to an end: Central banks signal low interest rates…

Even as the global economy shrugs off post-COVID-19 inflation worries, policymakers spoke yesterday that signaled the end of an era of high interest rates.

Officials from the world’s three largest central banks have all said they will take decisive action to cut interest rates in the coming months.

As a result, major central banks have signaled that they will end the tightening process that began in 2022 in the name of “fighting high inflation.”

Faced with high inflation in the United States, the Federal Reserve completed its asset purchase operations in 2022 and began raising interest rates. From March 2022 to July 2023, it raised interest rates 11 times, for a total of 525 basis points.

The Fed has kept interest rates at 5.25-5.50% – the highest level in 23 years – since July 2023. The bank is believed to be set to cut rates for the first time in September.

Powell’s discount signal

In a speech at Jackson Hole, an annual gathering of central bankers and economists from around the world, Federal Reserve Chairman Jerome Powell said it was “time to adjust policy,” pointing to a possible rate cut in September.

Green light from Europe

Several members of the European Central Bank’s (ECB) Governing Council also weighed in on Powell’s decision to cut rates.

Finnish central bank governor Olli Rehn, Latvian central bank governor Martins Kazaks, Croatian central bank governor Boris Vujcic and Portuguese governor Mario Centeno said they would support another rate cut next month following the ECB’s June move.

The ECB cut its benchmark interest rate by 25 basis points in June and kept its deposit rate unchanged at 3.75% in July.

UK sends out message of continued discounts

Bank of England Governor Andrew Bailey also said the risk of permanent inflation had fallen and hinted he was open to further rate cuts.

The Bank of England (BoE) also cut its policy rate by 25 basis points to 5% earlier this month, the first cut since the outbreak of the epidemic.

On the other hand, central banks in Canada, New Zealand and China are all easing policy. The biggest exception is Japan, where authorities have launched their first tightening cycle in 17 years.