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Sharp Interest Rate Hike by the U.S. and Responses from Major Central Banks
Jerome Powell, Chairman of the U.S. Federal Reserve (mbiz.heraldcorp.com)

The United States (U.S.) Consumer Price Index (CPI) figures for June 2022 reached 9.1%, the highest in nearly 41 years. These high inflation numbers have led the U.S. Federal Reserve, also known as the Fed, to hike the interest rates further. On July 17th, the Wall Street Journal reported that the Fed could hike interest rates by three-quarters of a percentage point to control inflation. This report raised the possibility that the Fed might opt for a full one percentage point rate hike the next month. However, comments by Fed officials on the policy decisions have undercut some of the urgency for a more significant increase. Furthermore, data shows that economic activities have been holding up and the inflation outlook among consumers has been improving. On the other hand, the European Central Bank (ECB) has maintained a -0.5% deposit rate since 2014. As a result, the euro has fallen below the U.S. dollar for the first time in 20 years. Therefore, the ECB also raised interest rates by half a percentage point. In contrast to the Fed and the ECB, the People’s Bank of China (PBOC) has held its Loan Prime Rate (LPR) steady at 3.7%, trying to strike a balance between preventing faster inflation and supporting the economy. The Bank of Japan (BOJ) is also expected to hold its interest rates at -0.1% to stimulate the economy, even though the Japanese yen has depreciated sharply against the U.S. dollar.

정민주  sophiejmj@g.skku.edu

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