Fed and BoE Converge on 3.75% Rate

The Federal Reserve raised its benchmark interest rate by 25 basis points on Wednesday. This was the first hike since 2023. The new target range sits at 3.75% to 4.00%. The decision was unanimous, with a 12-0 vote.

The Bank of England held its rate steady on Thursday. Its policy rate remains at 3.75%. The Monetary Policy Committee voted 6-3 to maintain this level. This marks the sixth consecutive meeting without a change.

Divergent Paths Lead to Same Level

The two central banks now share the same floor rate. The Fed reversed its previous cutting cycle. The median year-end projection rose to 4.1% from 3.8%. Officials expect at least one more hike this year.

The Bank of England faces a different internal debate. Three members voted for an immediate hike to 4.00%. These members argued that inflation remains too high. UK inflation reached 3.1% in August.

Energy Shock Drives Inflation

Both institutions cite a Middle East conflict as the primary driver. Energy prices remain elevated due to this geopolitical tension. The Fed acted because US inflation was already high. The Bank of England waited for labor market cooling.

The Bank of England also adjusted its quantitative tightening. It cut future gilt sales to £46 billion a year. This is down from £70 billion previously. Active sales will pause for six months.

Precious Metals Defy Rate Hike

Gold traded near $4,363 per ounce on the session. This represented a 2.34% increase. Silver rose 4.23% to $65.63. Both metals extended their weekly rebound.

Gold prices react to real yields rather than nominal rates. A 25-basis-point move in real yields typically shifts gold by $40 to $60. Inflation expectations rose alongside the rate hike. This kept real yields flat or slightly lower. Source: GN auto markets/commodities: silver prices.