Global interest rates set to remain higher for longer

investmentnews.com:

The global economy is shifting toward a higher-for-longer period for interest rates, making the coming flurry of monetary decisions across the developed world pivotal in mapping out that plateau.

In the next week or so, borrowing costs will be set for seven of the world’s 10 most-traded currencies — including the dollar and the euro — with a picture of prolonged policy constriction set to emerge. 

There’s suspense on the outcome for some of those decisions, with the European Central Bank’s Thursday meeting too close to call. But there’s a growing consensus that even those set to hold, such as the Federal Reserve, will be keen to reinforce their state of alert about inflation after dropping the ball back in 2021.

Higher-for-longer was the overarching theme that policymakers spoke to at the Fed’s retreat last month in Jackson Hole, Wyoming. And while the onset of the steepest tightening cycle in a generation varied across the Atlantic, a more united sense of purpose is now on show as the prospect of an end to those rate hikes comes into view.

First up will be the ECB, whose policymakers face a knife-edge decision on Thursday on whether to keep raising rates or enact a pause. 

Economists are almost evenly split on the outcome. Money markets are placing around a 40% chance on a 10th consecutive increase to 4%, down from more than 60% last month, as traders accounted for data pointing to a weakening German economy. A final quarter-point hike hasn’t been ruled out completely, with odds favoring such a move by year-end.

No matter what option President Christine Lagarde and her colleagues go for, an arguably tougher challenge will be to convince financial markets that they will keep policy tight as long as needed to tame prices