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Global Category Intelligence
Q2 2025
Global Category Intelligence
Q2 2025
ALERT: Global Monetary Policy
February 2, 2024
Major central banks globally implemented monetary policy tightening measures in response to escalating inflation, initially triggered by elevated prices of goods and energy and bottlenecks in global supply chains.
United States (Federal Reserve)
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The Federal Reserve, at its policy meeting concluding on January 31, 2024, opted to keep interest rates within the range of 5.25% to 5.50%. The Fed indicated that rates likely reached their peak and could be lowered later in 2024 if inflation continues to trend towards the Fed's 2% target. The Fed is reducing its assets in the Quantitative Easing program by $95 billion monthly.
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By March 15, 2020, amid the COVID-19 pandemic, the Fed had reduced interest rates to nearly 0% (down from 1.5%-1.75% before the pandemic). On March 23, 2020, the Fed introduced several measures to support the economy, including buying debt from government corporations and other securities. The Fed began raising rates again in March 2022, from 0-0.25% to 5.25-5.50% in July 2023.
UK (Bank of England)
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On February 1, the Monetary Policy Committee (MPC) of the Bank of England declared the maintenance of interest rates at 5.25% for the fourth consecutive meeting. This decision followed a series of 14 consecutive rate increases, starting from 0.1% in December 2021 and reaching 5.25% in August 2023.
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In the February MPC vote, six members favored keeping rates unchanged, two supported a 0.25 percentage point increase, and one advocated a 0.25 percentage point cut. The MPC's previous cycle of rate hikes was a response to high inflation, which peaked at 11.1% in October 2022 and decreased to 4.0% in December 2023. The MPC anticipated a brief drop to its 2.0% inflation target in Q2 2024 before a subsequent increase to 2.8% in Q1 2025. While removing the mention of raising rates in case of persistent inflation, the MPC reiterated the necessity of keeping rates elevated for sustainable inflation reduction.
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The MPC initiated a reduction in the size of its Quantitative Easing (QE) program, decreasing it from £895 billion to £741 billion by January 24, 2024. This reduction involved letting some government bonds mature and actively selling others in the market. QE consists of creating new money electronically (central bank reserves) used to purchase financial assets, predominantly government bonds.
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In response to the COVID-19 pandemic in March 2020, the Bank of England implemented measures, including reducing interest rates to 0.1%, the lowest level ever, maintained until December 2021. The MPC also expanded its QE program by £450 billion in 2020 and 2021, peaking at £895 billion.
Eurozone (European Central Bank)
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During its January 25, 2024, meeting, the European Central Bank (ECB) maintained its main interest rates, including the deposit rate at 4.0%. The ECB had increased rates by 4.5 percentage points from July 2022 to September 2023. With the Eurozone's annual inflation rate slowing, financial markets anticipate the ECB to begin cutting rates later this year.
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The ECB began unwinding its QE programs in March 2023 by not reinvesting €15 billion per month of maturing assets in one of its main QE programs. The ECB launched its pandemic response on March 12, 2020, expanding it significantly on March 18 and June 4. The ECB also provided cheap loans to banks to encourage lending to businesses. In July 2022, the ECB introduced a new bond purchase program, the Transmission Protection Instrument (TPI), designed to lower government borrowing costs in individual countries if market dynamics are causing unwarranted disruptions.
Key Takeaways
Triggered by elevated prices of goods, energy and bottlenecks in the global supply chain, major central banks are implementing monetary policy tightening measures. All three central banks (Fed, Bank of England, ECB) have implemented Quantitative Easing (QE) programs in response to the pandemic, creating new money electronically to purchase financial assets.
1. United States (Federal Reserve): The Fed kept interest rates within the range of 5.25% to 5.50% at its January 31, 2024, meeting.
- Indications suggest that interest rates may have peaked, with potential future lowering in 2024 if inflation trends toward the Fed's 2% target.
- The Fed is reducing its assets in the QE program by $95 billion monthly
2. United Kingdom (Bank of England): The Bank of England's Monetary Policy Committee (MPC) maintained interest rates at 5.25% for the fourth consecutive meeting in February.
- Previous rate hikes responded to high inflation, which peaked at 11.1% in October 2022 and decreased to 4.0% in December 2023.
- The MPC initiated a reduction in the size of its QE program, decreasing it from £895 billion to £741 billion by January 24, 2024.
- The Bank of England reduced the size of its QE program from £895 billion to £741 billion.
3. Eurozone (European Central Bank): The European Central Bank (ECB) maintained its main interest rates during its January 25, 2024, meeting.
- The ECB had increased rates by 4.5 percentage points from July 2022 to September 2023.
- Financial markets anticipate the ECB to begin cutting rates later in the year as the Eurozone's annual inflation rate slows.
- The ECB began unwinding its QE programs in March 2023.
Market Expectations:
- Financial markets anticipate potential future rate cuts by the Federal Reserve and the ECB due to slowing inflation rates.
- The MPC in the UK anticipates a brief drop to its 2.0% inflation target in Q2 2024 before a subsequent increase to 2.8% in Q1 2025.
- These key takeaways highlight the ongoing efforts of major central banks to address inflationary pressures and their differing approaches to monetary policy adjustments.
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