US Followed by Europe in Raising Benchmark Interest Rates... When Will the Tightening End?

Following the United States, Europe has also consecutively raised its benchmark interest rates.

European Central Bank in Frankfurt, Germany
[Image source=Reuters Yonhap News]

On the 27th (local time), the European Central Bank (ECB) announced that it would raise the benchmark interest rate by 0.25 percentage points from 4.00% to 4.25%. This decision was made at the monetary policy board meeting held that day, with the deposit rate and marginal lending rate also each increased by 0.25 percentage points to 3.75% and 4.5%, respectively.Since last July, when the ECB took a big step by raising rates by 0.5 percentage points for the first time in 11 years, it executed giant steps of 0.75 percentage points twice consecutively in September and October. Afterward, it raised rates by 0.5 percentage points three times, followed by three consecutive big steps again, before returning to baby steps (0.25 percentage point increases), marking nine consecutive rate hikes.

This increase was already anticipated last month by ECB President Christine Lagarde, so the focus now is on whether further tightening will occur. The possibility of ending tightening is growing as the Eurozone economy shows signs of contraction. There are also forecasts that the ECB may hold rates steady in September and strengthen quantitative tightening measures such as reducing bond purchases after this rate hike.

Meanwhile, on the 26th (local time), the U.S. Federal Reserve (Fed) also implemented a baby step as expected, resulting in both the U.S. and Europe raising benchmark interest rates within two days. Accordingly, the U.S. federal funds rate was raised from the previous 5.0?5.25% range to 5.25?5.5%. This marks the highest level for U.S. benchmark interest rates since 2001. Since entering the rate hike cycle in March last year, the Fed had raised rates ten consecutive times, paused at the June Federal Open Market Committee (FOMC) meeting to assess the cumulative effects of tightening, but then immediately decided on the 11th rate hike.

This content was produced with the assistance of AI translation services.