US and UK: interest rate hikes

The US Federal Reserve has raised the key interest rate by 0.5 percentage points in view of high inflation, the biggest hike in 22 years. In future the rate is to lie between 0.75 and 1 percent. The Bank of England has also raised its interest rates for the fourth time in a row, to one percent. Commentators discuss the consequences for the Eurozone and the UK.

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taz, die tageszeitung (DE) /

ECB should follow suit

The decision will also have an impact on Europe, the taz explains:

“Higher interest rates also bring higher returns. As a result, investors will increasingly look to the US - and more and more money will flow from the euro to the dollar area. The dollar will cost more in euros, which will further fuel the already high inflation rate in the Eurozone. Oil and gas in particular are traded worldwide in dollars. So the ECB should follow the Americans' example and raise interest rates. For months the central bank hesitated, arguing that the rise in inflation was only temporary. Now, however, it no longer looks like that is the case.”

Les Echos (FR) /

Things are different on this side of the Atlantic

The ECB cannot apply the same strategies as the Fed, writes business paper Les Echos:

“Inflation in the US is mainly home-made, whereas in Europe its sources are largely external. On our continent, the rise in prices is mainly caused by soaring energy prices. The dependence of European countries on Russia as a supplier explains why the price of gas and, to a lesser extent, oil is currently higher in Europe than in the US. Externally driven inflation is less easy to combat by hiking up interest rates. This means that the ECB is partly deprived of the traditional levers that the Fed can exploit to the max.”

The Times (GB) /

Era of near-zero interest rates is over

The Bank of England should have raised the interest rate sooner, says The Times:

“No one could know the economic impact of new strains of Covid and policymakers feared that tighter monetary conditions might choke off recovery. Yet in retrospect rates were kept too low ... for too long. ... The Bank was late in responding to the dangers of high inflation and it cannot afford to allow inflationary expectations to become unanchored. Price stability is essential to a successful economy and expanding living standards. That means Britain will now have to adjust to the end of an era of near-zero interest rates.”

New Statesman (GB) /

Not in the interest of the people

The Bank of England's decision is wrong, writes economist David Blanchflower in The New Statesman, drawing parallels with the 2008 recession:

“Then, as now, rising oil and commodity prices were the driver of higher inflation. The jump is temporary and will fade as people cut their spending and start to shun expensive goods. How a rate rise solves the problem of pandemic-induced supply shocks beats me. ... Consumers are heading for economic Armageddon as they face the biggest forecast squeeze in household income since records began in 1956-57. The MPC [the Bank of England's Monetary Policy Committee] is representing the interests of the Square Mile and its banker friends, who like higher rates, not those of the woman waiting for a bus.”