Switzerland Surprises with Interest Rate Cut
Swiss rates, plus various other trends in the global economy—in chart form.
The Swiss National Bank surprised markets with the first interest rate cut among its global peers. Central bankers in Japan ended the most aggressive monetary stimulus in modern history. And the Federal Reserve held the line on U.S. borrowing costs. As Fed policymakers stuck to their path of lowering rates this year, the Bank of England also moved closer to cuts.
Here are some of the charts that appeared on Bloomberg last week on the latest developments in the global economy:
Europe
Officials in Zurich lowered their benchmark to 1.5 percent, the first such reduction for one of the world’s 10 most-traded currencies since the pandemic abated. The central bank’s revised-down inflation forecast suggests “a fundamental reassessment of the momentum of inflation,” said George Moran, European economist at Nomura International Plc.
The Bank of England (BOE) took another step toward cutting interest rates in the coming months, after two of its most ardent hawks dropped their demands for hikes. Catherine Mann and Jonathan Haskel joined an eight-to-one majority on the Monetary Policy Committee to keep rates at a 16-year high of 5.25 percent, the latest sign that the BOE is edging toward easing policy later this year.
Eurozone increases in labor costs slowed at the end of last year, an outcome that is likely to provide encouragement for European Central Bank (ECB) policymakers who are studying the strength of wages as a key input for their decision on when to cut interest rates.
Asia
Now that Japan increased interest rates for the first time since 2007, investors and economists are divided over how long it will take before the central bank opts for another hike. Governor Kazuo Ueda repeatedly said that real interest rates in Japan remain deeply negative, and renewed weakness in the yen may spark concern among government officials seeking more action to firm up the currency.
Meanwhile, Hong Kong has fast-tracked into law domestic security legislation, prompting fresh warnings from the United States, European Union, and U.K. that the move could muzzle open discussion in the global finance hub. President Xi Jinping’s government tightened its grip over Hong Kong in the wake of mass pro-democracy protests that rocked the semi-autonomous Chinese city in 2019.
United States
Fed officials maintained their outlook for three interest rate cuts this year and moved toward slowing the pace of reducing their bond holdings, suggesting they aren’t alarmed by a recent uptick in inflation. Policymakers signaled that they remain on track to cut rates this year—for the first time since March 2020—but they now see just three reductions in 2025, down from four forecast in December, based on the median projection.
The Biden administration is considering blacklisting a number of Chinese semiconductor firms linked to Huawei Technologies Co. after the telecom giant notched a significant technological breakthrough last year. The U.S. government is pressing allies including the Netherlands, Germany, South Korea, and Japan to further tighten restrictions on China’s access to semiconductor technology.
And, oddly, the Bureau of Economy Analysis reports that U.S. households’ interest income declined over the past two years. Usually, when the Fed raises interest rates, U.S. households—in aggregate—get a boost to interest income that outweighs the extra cost of servicing debt. Not this time. Unlike every other Fed hiking cycle of the past half century, the latest one triggered a sharp decline in household net interest income.
World
In addition to the major central banks, Pakistan held its key interest rate at a record high, Indonesia kept its rate near a five-year high, and Iceland maintained Western Europe’s highest rate. Australia signaled it’s done tightening policy, Norway left rates at a 16-year high, and Turkey raised rates in a surprise decision. Mexico, by contrast, delivered a long-awaited rate cut.
The Bank of Japan (BOJ) finally ended an eight-year experiment with negative interest rates that has left more than $4 trillion in funds hunting for higher returns abroad. What comes next threatens to shake up money flows in Japan and across the world. One of the biggest questions is what happens to that big ball of money stashed overseas in assets, including U.S. government bonds, European power stations, and Singapore equities. So far, markets have taken Japan’s first interest rate hike since 2007 in stride.
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