Central banks turn the page

Like many of us, the world’s central banks are ready for a re-brand in 2023: Out with the inflation-fighting and in with a more laid-back approach to rate hikes.  

Driving the news: On the heels of better-than-expected inflation data, the US Federal Reserve raised its base interest rate by a half-percentage point yesterday to a range of 4.25%-4.5%, ending a months-long series of 0.75 percentage point “supersized” rate hikes. 

  • The change of pace is a reflection of recent economic data that has signalled price growth is slowing and may have even reached its peak.
  • Since the US and Canada moved more quickly and aggressively than other central banks to respond to rampant inflation, they can be among the first to pull back. 

Why it matters: The pivot to smaller rate increases by the world’s most demanding (literally) economy is likely to set the pace internationally, with both the European Central Bank and Bank of England also poised to increase borrowing costs this morning.

Zoom out: Price growth may be easing across Canada, the US, and Europe, but central banks will likely keep interest rates high for some time to keep demand contained. Most experts aren’t holding their breath for rate cuts before 2024.