Cutting Interest rates Sooner than Expected Could Hurt Central Banks’ Credibility

Introduction

After rapid increases in central bank policy rates across advanced countries, central banks are now allowing interest rates to act and operate across the economy to slow the pace of inflation. In October, the ECB held its policy rate unchanged after having raised policy rates at the previous ten meetings in a row while the Federal Reserve has maintained its policy rate unchanged in the last two meetings. In Sweden, policy rates were raised to 4%, from a low of -0.25% in 2018.