After a period of rapid price rises and surging interest rates, most of the world’s major central banks are now sufficiently confident about the trajectory of inflation to start bringing interest rates lower.
The decision comes after the Federal Reserve Chair, Jerome Powell, signalled at the Jackson Hole Symposium last August that the 'time has come' for a September rate cut.
Lower interest rates generally increase economic activity by stimulating borrowing and investment. In the World Economic Forum’s latest Chief Economists Outlook, when chief economists were asked which policy levers would be most effective at boosting growth over the next five years, 74% cited monetary policy for high-income economies and 59% for low-income economies.
Several European Central Bank officials have expressed support for a rate cut, citing concerns about economic growth and softening labour markets. Bank of England Governor Andrew Bailey has said risks of persistent inflation appear to be waning, suggesting he would be in favour of more easing. Central banks in Canada, New Zealand, and China are also easing, with Japan as an exception.
The Fed had aggressively increased rates to combat high inflation, bringing the federal funds rate to a range of 5.25% to 5.50% by July 2023, its highest level since 2001.
