BoE is set for its largest rate hike in 33 years after Fed’s massive rate increase

Global markets have reacted negatively to the Fed’s latest move; shares in Asia-Pacific dropped on Thursday while US stock futures resumed falling after a slight rebound. Following the negative note on Wall Street, European stocks also declined on Thursday.

BoE rate hikes is due on Thursday

Additionally, the market expects that the Bank of England will raise interest rates by 75 basis points on Thursday, which will mark its largest rate hike since 1989, although analysts believe policymakers will strike a more dovish tone going forward in light of the increasing likelihood of a recession occurring.

The Bank of England is expected to raise its main lending rate for the eighth consecutive time in November since UK inflation hit a 40-year high of 10.1% last month. However a major shift in fiscal policy and weakening growth momentum should reduce calls for aggressive monetary tightening in the future.

What we got from the Fed's announcement

On Wednesday, the Federal Reserve increased the target Fed funds rate by 75 basis points. It also said it was taking into account the lagging effects of higher interest rates on the economy as the bank follows further increases in rates. The initial statement was viewed as dovish since it appeared to indicate a smaller increase in interest rates could happen in the future.

However, in his briefing after the announcement, Fed Chairman Jerome Powell emphasized that the central bank would continue to fight rising overall price inflation until it can declare victory and reduce inflation to its target of 2%, which is currently at its highest level. Consumer inflation was running at an 8.2% annual pace in September.

In his remarks to the press, he makes it clear that they will be raising rates forcefully and thoughtfully. This statement is truly relevant because it really gets to the heart of the issue, which is that the bank knows it will have to create some pain with the rise in unemployment. In response, the stock market fell sharply after an initial rally, while bond yields increased. The Fed funds target rate range is now 3.75% to 4% after the hike on Wednesday.

There is a possibility that the markets will continue to flip-flop until it gets clear to the markets that inflation has levelled off and that the Federal Reserve has decided to cease raising interest rates. Concisely, any data that shows that the US economy is not slowing down, even though the central bank is tightening policy, should weigh on the stock market.

The next key report due to be released on Friday is the nonfarm payrolls for October, which are expected to show robust growth in wages.