News Banking US banks brace for recession

As consumer demand is threatened by inflation, the US banks are preparing for an economy that will deteriorate next year. Jamie Dimon, chief executive of JPMorgan Chase, said that while consumers and businesses are doing well, this situation might not last much longer as the economy weakens

Bank of England

BoE warns of 'material risk’

In addition to warning about threats to the country's financial stability, the Bank of England (BoE) disclosed other measures aimed at calming markets that had been shaken by the UK budget. The BoE and the UK government have already taken steps to calm the markets.

The move comes after the pound hit a record low against the dollar and UK bond yields skyrocketed when former PM Liz Truss presented debt-fueled tax cuts in the budget. The central bank announced that it was expanding the scope of daily purchases of UK government bonds, or gilts, after and inflation reduces consumer purchasing power.

"Those things might very well derail the economy and cause this mild to hard recession that people are worried about," he said.

According to Dimon, US consumers have $1.5 trillion in more savings thanks to previous stimulus measures, but they may run out by mid-2023. Additionally, he stated that after raising rates to 5%, the Federal Reserve may halt rate increases for three to six months, but that this may "not be sufficient" to reduce rising inflation. In November, the US central bank increased interest rates for the fourth time in a row by 75 basis points, bringing them to 3.75%–4%, but it also hinted that it hoped to switch to smaller increases as soon as its next meeting. launching a temporary facility to ease liquidity constraints.

Meanwhile, stock markets around the world have fallen amid concerns about economic stagnation next year. European shares are down by weakness in healthcare and ratesensitive tech stocks.

In a statement, the BoE said the latest action would "act as a further backstop to restore orderly market conditions." It noted that "the starting of December has seen a further significant repricing of UK government debt, particularly index-linked gilts," which the central bank will now purchase under its wider operation of bond purchases.

"Dysfunction in this market, and the prospect of self-reinforcing 'fire sale' dynamics pose a material risk to UK financial stability," it added.

Meanwhile, British unemployment fell to a near 50-year low at 3.5%. Wages, however, continue to be eroded by sky-high inflation.

Australian lenders lift home loan

The 'Big Four' Australian lenders, Commonwealth Bank of Australia, National Australia Bank, Westpac Banking Corp, and Australia and New Zealand Banking Group, said that they will increase house loan rates by 0.25% annually. The action coincides with a 25 basis point increase in the benchmark lending rate by the nation's central bank earlier in the day. As of now, Australian banks have increased borrowing charges in accordance with the Reserve Bank of Australia's (RBA) lead.

After the RBA's most recent boost, which was milder than the 50 basis point, bank shares increased. The central bank claimed that because rates had already been significantly boosted, it had delayed the pace of monetary tightening. The financial index had its highest day since June 2020 as it closed 4.2% higher. Westpac's rates will go into effect, while CBA, ANZ, and NAB's new rates will start to apply from November 2022.

While NAB claimed its savings and term deposit rates were "continually under review," Westpac, ANZ, and CBA also increased interest rates on several of their deposit products.

Meanwhile, the RBA raised its cash rate to a nine-year peak of 2.60%, the sixth hike which included four outsized moves of 50 basis points.