Bailey speech: Higher minimum wage has not led to bad news from our perspective
|Bank of England (BoE) Governor Andrew Bailey explains the decision to lower the policy rate by 25 basis points to 5% in August and responds to questions from the press.
Key takeaways
"Businesses do talk to us quite a lot about higher minimum wage."
"Higher minimum wage has not led to bad news from our perspective."
"Firms regularly make point about higher minimum wage leading to compressed pay scales."
"Mortgage rates had already priced in a rate cut by the BoE this month or next."
"Mean path for inflation which incorporates upside risks much closer to 2% target than median forecast."
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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