The noise
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The Federal Reserve decided to increase interest rates by 0.25% on Wednesday, pushing the US rates range up to 5.25% - 5.50%, the highest level since 2001. Fed chair Jerome Powell emphasised that the economy still needs to slow down, and the labour market weaken for inflation to return to the Fed’s 2% target. He also said that there would be no rates cuts this year, following 11 rate hikes and one pause in the Fed’s last 12 meetings.
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The Bank of Japan has announced that it will be implementing a more flexible approach to its yield-curve control program. This follows pressure to alter the policy in the face of elevated inflation and improved wage growth in Japan. Some investors are seeing this as a precursor to a shift away from the prolonged period of ultra-loose monetary policy by the central bank.
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Low Carbon, a privately-owned UK investment firm received £400m worth of investment this week to be deployed into large-scale renewable energy projects across the UK, Europe and North America. The investment by MassMutual, a US-based insurance company, will add considerable renewable energy capacity to the UK and Europe. It follows last month's announcement of a £310m investment from leading international banks to aid the construction of approximately 450MW of solar PV capacity in the UK and Europe.
The numbers
The nuance
The US Federal Reserve’s move to raise interest rates by 0.25% did not come as much of a surprise, and unsurprisingly did very little to markets. Interestingly, Federal reserve staff, as well as estimates from the Congressional Budget Office no longer expect a recession for the US economy. To confirm that this is the case, two key indicators will need to be monitored: the yield curve, and US jobless claims.
During the meeting on Wednesday, Fed chair Jerome Powell acknowledged the positive development that inflation has dropped from the highs of last year without significant harm to the economy. However, the Fed faces a challenging period ahead in its inflation fight, as they must carefully balance the necessity of implementing further rate hikes with the potential risks of going too far. Powell conceded that successfully addressing inflation would likely entail accepting some level of economic loss.
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