Major central banks hold interest rates; cuts in borrowing costs seen in 2024

The world’s three largest central banks – the US Federal Reserve, Bank of England and European Central Bank – kept interest rates on hold last week amid concerns over stubbornly high inflation, despite growing expectations for sharp cuts in borrowing costs in 2024.
Stubbornly high inflation forces many central banks to avoid cuts, but markets seem to expect falls next year.
However, financial markets are expecting interest rates to be cut next year amid what they argue “cooling inflation”.
High borrowing costs will weigh on economic growth, raising the prospect of recessions on both sides of the Atlantic before key elections.
The Federal Reserve is about to embark on an interest rate-cutting journey next year following the US central bank’s December 13 decision to hold interest rates steady.
Fed clearly signalled in new economic projections that the historic tightening of US monetary policy engineered over the last two years is at an end and lower borrowing costs are coming in 2024.
After raising the policy rate by 5.25 percentage points since March of 2022 in one of the swiftest Fed reactions to rising price pressures, the central bank has now kept the policy rate on hold since July as inflation edges closer to its target.
Interest rates are now set to a range of 5.25 to 5.5%, where they have been since July. After making a rapid series of increases that started in March 2022 and pushed borrowing costs to their highest level in 22 years as of this summer, officials have now held policy steady for three straight meetings.
Investors are watching closely for any hint at when — and how much — interest rates will fall, according to The New York Times. Fed policymakers projected on December 13 that they will lower borrowing costs to 4.6% by the end of 2024, down notably from their previous 5.1% estimate.
The forecast implies that officials will make three rate cuts next year, The New York Times said.
That call for lower rates was widespread: Not a single Fed official expected interest rates to be higher at the end of next year.
It is “too early” to speculate about when UK interest rates will be cut, according to the governor of the Bank of England.
Andrew Bailey spoke after the Bank voted to hold interest rates for a third time at 5.25% – a 15-year high.
On December 13, the US Federal Reserve signalled that rates were at or close to a peak and could fall next year.
But in contrast, Bailey said it was not possible to “definitively” say the same for the UK.
The bank has lifted interest rates 14 times since December 2021 to cool soaring inflation, which measures the pace at which prices are rising.
2023 has been an uncertain one for the global economy, as inflation, rising interest rates, tight labour markets and geopolitical shocks have hit forecasts and predictions.
Economists say central banks are using a “wait and see” approach to guard against inflationary pressures becoming entrenched.