Central bankers across the globe are delivering a message: Slow and steady won’t win the race against inflation.
“If we don’t raise rates now, high inflation can stay with us for longer,” Bank of England Governor Andrew Bailey said after raising interest rates unexpectedly by half a percentage point on Thursday.
Even though inflation is slowing in many countries after more than a year of interest rate hikes, it remains above the 2% level many central banks are targeting.
Raising interest rates is the primary tool central bankers have at their disposal to get inflation down. At the same time, research indicates there’s a lag effect of at least 12 months from when a central bank acts to when its actions are felt across the economy.
That’s why the Federal Reserve paused interest rate hikes at its June meeting after 10 consecutive hikes since last March. Yet many Fed officials are signaling interest rates could go up again next month since they, like Bailey, don’t want to risk losing their grip on inflation if they don’t act now.
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Source: edition.cnn.com
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