Central banks’ so-called benchmark interest rates are the rates they charge commercial lenders to borrow money.
They differ from, and are usually significantly lower than, the rates that people pay on their mortgages or loans or personal loans. They are usually much higher than the rates that ordinary savers can expect to receive for their bank deposits. But despite this they have a direct impact on these rates.
After years of unprecedented benchmark rates near zero – never seen before the financial crash of 2008/2009, but in fact the norm in most Western economies since then – central banks first raised interest rates since the Covid-19 pandemic. running for. And then Russia’s invasion of Ukraine began to push inflation’s long-flat-line numbers skyward.
An increase in interest rates is seen as an attempt to rein in inflation by discouraging borrowing and therefore spending.
The Fed got credit for spotting this trend a little earlier than others and for reacting more quickly. The eurozone’s European Central Bank won’t touch its benchmark rates until July 2022, four months after the Fed’s first response.