EU Central Bank and US Fed join to increase interest rates

Thursday 8 September 2022 15:15 CET | News

The European Central Bank (ECB) and the US Federal Reserve have joined hands to increase the interest rate, in an attempt to stamp out record inflation.


However, policy makers worry that the financial measure risks worsening the upcoming European recession and could put an overweight on both creditors and population. 

The bank’s governing council is considering raising its main benchmark for the 19 countries part of the Euro zone, although the exact percentage is yet to be discussed. According to officials, we could see a 0.5% increase or up to a record 0.75% increase, which would be the first measure of this type since 2011.


Record inflation rates

The ECB didn’t predict any rate increase over the fiscal year 2022 but is now facing a record inflation of 9.1%, on average, in August 2022, with some countries even handling rates at up to 15.2%, increases driven by the skyrocketing prices of natural gas and energy, amid the ongoing Russia-Ukraine war. Given that the ECB is considering a 2% inflation rate as the healthiest for the European economy, adjustments in the interest rate are necessary to fight against the current worldwide economic climate.

However, the ECB President, Christine Lagarde, mentioned that there is no recession and there won’t be one in 2023 either, even though most countries face unprecedented price spikes, inflation rates, and economic turmoil. 

A higher interest rate would directly influence the cost of credit throughout the economy, making it harder for both companies and people to borrow, consume, and invest and, therefore, would impact the economic growth rate.

Federal Bank to see increase in interest rate

The ECB is falling behind other central banks that have already raised their interest rates, amid global concerns.

By comparison, the Federal Bank’s benchmark for lending to banks is currently 2.25% and will increase to 2.50%, while Bank of England’s key benchmark is now 1.75%. Price stability seems to be the common ground for all central banks undergoing changes in their interest rates, with the risk of higher unemployment and lower growth. 

Moreover, a higher interest rate would support EUR’s exchange rate against the USD by increasing demand for EUR-denominated investment holdings.

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Keywords: interest rate, Russia Ukraine War, central bank, merchant, inflation, economic recession, regulation
Categories: Banking & Fintech
Companies: European Central Bank, Federal Reserve
Countries: Europe, United States
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European Central Bank


Federal Reserve

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