IBonomics
The week’s clearest policy signal came from Washington. According to Federal Reserve, the Federal Reserve unanimously raised the federal funds target by 0.25 percentage points to 3.75% to 4% on September 16. Britain offered a parallel contrast rather than a consequence. In the interview published as Bank of England — News, Governor Andrew Bailey said the Bank of England had held rates steady as high energy prices complicated the inflation outlook.
Two central banks, two choices
According to Federal Reserve, US economic activity was expanding solidly, but inflation remained elevated when officials voted 12 to 0 for the increase. A policy rate is the short term interest rate a central bank steers. Raising it normally lifts borrowing costs across the economy, discouraging some consumption and investment and reducing demand pressure on prices. The tradeoff is that restraint can also slow hiring and output.
Across the Atlantic, Bank of England — News reports that the Bank of England kept its policy rate unchanged, while mortgage rates had risen by nearly 1% since February 2026. Governor Andrew Bailey linked the difficult setting to energy prices and uncertainty surrounding conflict in the Middle East. Energy shocks can raise inflation even when domestic demand is not booming, leaving central banks to balance price stability against the risk of suppressing activity.
Europe’s households expect pressure and prefer deposits
The euro area’s households supplied a useful view of the policy terrain. In the August survey, European Central Bank puts median inflation expectations for the next year at 3.0%, while perceived inflation over the past year remained 3.5%. Expected nominal income growth was 1.0%, compared with 3.6% expected spending growth. Expectations matter because workers, consumers and firms may adjust wage demands, saving and prices when they anticipate persistent inflation.
Those choices sit inside an unusually bank based savings system. According to European Central Bank — The ECB Blog, around 80% of euro area households own neither stocks nor other market based instruments, while nearly €10 trillion is held in cash and low yield deposits. Saving defers consumption, but the asset chosen determines risk, return and how directly funds reach businesses. Deposits offer liquidity and relative simplicity, whereas broader capital market participation can diversify portfolios while exposing households to price losses.
The SVB review widens the lesson
Financial stability returned to an older failure with fresh institutional scrutiny. According to Federal Reserve — Speeches, an independent review found that Silicon Valley Bank entered its 2023 collapse with large unrealized losses and a deposit base heavily concentrated in uninsured funds. It also found that Federal Reserve supervisors knew of vulnerabilities by March 2022 but did not act decisively. That makes supervision, not just bank management, central to the lesson.
A bank run becomes possible because deposits can be withdrawn quickly while many bank assets mature slowly or fluctuate in market value. Federal Reserve — Speeches says the review calls for reforms to supervisory practice, reflecting failures to escalate known concerns. Unrealized losses are declines in asset values not yet crystallized by sale. They can still matter if withdrawals require a bank to sell, turning accounting losses into cash losses when liquidity is most scarce.