Central Banks Near Rate Peak, but Economic Toll Yet to Be Counted

livemint.com:

LONDON—Central banks around the world appear to be nearing the end of a series of interest rate rises, but the economic cost of the battle against inflation is only beginning to emerge, with mounting signs that Europe could be among the hardest hit. Although there may be more rises to come, many central banks have signaled that interest rates should now be high enough to bring inflation back down. Of the 12 central banks that announced policy decisions in the past five days, eight left their key interest rates unchanged, including the Federal Reserve and the Bank of England.

The recent rate rise campaign is unprecedented in breadth, scale and speed. More policy makers have raised borrowing costs to a greater extent than in any previous period of similar duration. Those rate rises were designed to slow demand and labor markets, and ultimately economic growth, in a bid to cool inflation.

But their impact will be felt long after the last vote to raise rates has been cast, and the degree to which the jobs market and economic growth weaken will play a big part in determining how long central banks wait before they start cutting rates again. Many have signaled that they are unlikely to cut their key rates until well into 2024—or later—but that may change if economies slow more sharply than expected, a risk that appears greater in Europe than in the U.S. “Maybe the Fed has done too much, but Europe has chased the Fed to the point where the economy can’t live with this," said Dario Perkins, an economist at T.S.

Lombard. The global economy cooled in the three months through June and there are few signs of a rebound outside of the U.S. While China’s economy has slowed, Europe’s economy appears most at risk of an outright