The US Federal Reserve is no longer a benchmark for global monetary policy

Central banks across countries made a series of interest rate moves this week, led by the US Federal Reserve (Fed), which on Wednesday cut its benchmark rates for the first time since 2020.

Unlike other times, when the US central bank is usually the reference for monetary policy, on this occasion, the decisions of the central banks are divergent, due to the disparate behavior of the economies, since while some are still dealing with the inflationary effects arising from the Covid-19 pandemic and then aggravated by Russia’s invasion of Ukraine, other countries are approaching economic stagnation and even recession.

On Wednesday, the Fed opted to lower its reference rate by half a percentage point, leaving it within a range of 4.75 to 5 percent, considering that inflation is close to its 2 percent target and that job creation is beginning to slow down.

In contrast, Brazil’s central bank raised its Selic interest rate by a quarter point for the first time in more than two years, to 10.75 percent, saying inflation risks were on the rise amid a stronger-than-expected labor market and robust growth in Latin America’s largest economy.

A day later, the Bank of England kept interest rates at 5 percent, citing accelerated wage growth and a lack of signs of how quickly inflationary pressures were easing.

Norway’s central bank also kept its benchmark rate unchanged at 4.5 percent, the highest since December 2008, although it opened the door to easing monetary policy.

China and Japan did not change their monetary policy. As expected, the Bank of Japan left short-term interest rates at 0.25 percent, expressing confidence that consumption and a solid economic recovery will allow the central bank of the world’s third-largest economy to tighten in the coming months.

The Bank of Japan ended negative interest rates in March and raised the short-term rate to 0.25 percent in July, an unprecedented reversal of a decade-long stimulus program aimed at lifting inflation to the expected 2 percent level after years of deflation.

Instead, the Bank of China’s decision came as a surprise, keeping the one-year prime lending rate at 3.35 percent and the five-year rate at 3.85 percent, as analysts point to the urgency of deploying more stimulus measures to shore up the world’s second-largest economy.

The European Central Bank (ECB), which covers 20 economies in the zone, cut its interest rate by a quarter of a percentage point on September 12 for the second time this year to 3.5 percent, a widely expected move after a similar cut in June, at a time when inflation is close to its 2 percent target and the economy is on the brink of recession. Growth is flagging, especially in Germany, the zone’s industrial powerhouse, reinforcing the case for lower borrowing costs.