Central Banks set to hit peak rates at faster pace

Investors are anticipating a sharper rise in interest rates in the coming months as the world’s largest central banks strengthened their determination to tackle rising prices, indicating they would prioritize inflation over growth.

A Financial Times analysis of interest rate derivatives, which tracked expectations for borrowing costs in the US, UK and the eurozone, showed that markets expect a more drastic pace of tightening in the last quarter of 2022 than earlier this year.

The mood swing comes this week ahead of crucial policy meetings of the US Federal Reserve, the Bank of England, the central banks of Norway and Sweden and the Swiss National Bank. It follows a poor inflation reading in the US in August and warnings from monetary policymakers on both sides of the Atlantic that they were increasingly concerned that without substantial rate hikes, high inflation would be difficult to shift.

“Central banks are beginning to understand how difficult it will be to get inflation back on target and they are trying to get that message across to the markets,” said Ethan Harris, an economist at Bank of America.

Growing expectations that central banks will raise interest rates even if their economies plunge into recession have raised concerns at the World Bank. The Washington-based organization warned last week that policymakers risked plunge the global economy into recession next year.