Sirwin
Sirwin
3 pauses and a hike

FED, Bank of England, Swiss National Bank Hold Rates Steady


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A week ago Monday, the Bank of Canada led the charge by leaving rates at 5%. Yesterday morning, the Swiss National Bank 'surprised' markets by also pausing and leaving rates at 1.75%, against expectations of a 25 basis point rate hike. Then, later in afternoon, the Federal Reserve also announced a pause on hikes, leaving rates unchanged at 5.25 / 5.5%. This morning, it was the Bank of England's turn to pause on rate hikes.

The latest news out, the BoE has left the key policy rate at 5.25% marking the first pause in its rate hike cycle which began in December, 2021. The BoE has had 14 consecutive rate hikes during that time, making it the most aggressive rate hike cycle in more than 30 years. Their goal, just like all the other central banks, is to tame inflation down to their 'imaginary' 2% target. 

Late last week, the European Central Bank, as we can now see, bucked the trend by raising rates to a record 4%. As I see it, they're just playing catch up with the rest of the central banks. Keep in mind that every time they play around with rates, it also affects their respective currencies and those they trade with. For example, the Swiss Franc dropped almost a full percent after announcing their interest rate pause. On the other hand, the U.S. dollar is up almost one percent for the week to 105.657 while the British Pound is down 1.77% for the week. Year to date, the Pound is down 2.54%.

Looking at oil, WTI Crude has risen a full $10 USD per barrel just in the last 4 weeks to just under $90 this morning. That's quite a steep 12.5% hike in the price of oil in just one month. Global News in Canada published this article this morning titled, 'Growing number of forecasts oil will reach $100 this Fall'. In the very first paragraph they state that $100 oil  will 'put even more pressure on consumers and make it harder for central banks to rein in inflation'.

As I stated in a previous post, 'Projected oil deficit signals higher gas prices', the OPEC oil producing nations, led by Saudi Arabia have cut back on oil production starting last April and increasing that cut from 1 million barrels per day to 2 million throughout this summer and finally, 3 million barrels per day in the final quarter of 2023. I calculated that by the end of the year, OPEC will have cut oil production by roughly half a billion barrels, which is comparable to their production cuts last seen in 2007 and we know what followed shortly afterwards.

So, if central banks are hoping to rein in inflation, it won't happen this Fall because gas prices have already started rising and are sure to go higher as we head into winter when we need fuel the most. If inflation ramps up and it will, expect another rate hike before year end, even though many 'experts' believe that these rate hike pauses are a signal that rate cuts are on the way. Well, maybe later next year because of election time in the U.S.A..

Gold initially rose yesterday to over $1945 but was swiftly tamped down starting around 4 p.m. and the slump continues this morning to where gold now sits at $1913. Bitcoin is experiencing a similar drop as well from a high of $27,264 yesterday to $26,566 as of writing.  Considering Bitcoin hit a low of $25,023 on September 11, it is faring quite well.

Please share your thoughts in the comments section below, thanks.

(See references section for more information.)

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Previous Posts:

U.S. national debt surpasses $33 Trillion.

Japanese Yen hits record low against gold.

European Central Bank hikes again to record 4%.

Massive oil deficit next quarter signal higher gas prices!

Loose lips sink ships. Your co-workers are not your friends.

Central bank gold buying spree not slowing down.

Oil prices in gold remarkably stable for last 70+ years.

 

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SweptOverNiagara
SweptOverNiagara

Name's Joe and I live in Ontario, Canada. I like writing on a wide variety of topics. I enjoy keeping track of markets, investing and commodities and the crypto sector. Also do some coding for web browsers.


The Brave New World
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