Fed's 2022 rate rises to bite fully this year

Significance

The major central banks use one key tool to implement policy and influence the economy as directly as possible -- an overnight interest rate on banks’ reserves at the central bank. This one-day rate influences the interest available from long-maturity investments, which shapes spending in major parts of the economy.

Impacts

• Floating rate mortgages are far more common in Europe than the United States, making policy transmission via mortgage markets more direct.
• Spending on durable goods, which peaked in the United States in September 2022, will continue to decline through 2023.
• Central banks' newest tool, forward guidance, prods markets to do some of the work by giving actionable information to guide prices.