Decision on interest rate rise on knife-edge amid banking crisis fears

A trader at the New York Stock Exchange earlier this month watching the Dow Jones fall on comments that the central bank was likely to raise interest rates. Photograph: Justin Lane/EPA

Central banks on both sides of the Atlantic are facing one of the toughest calls on interest rates in years, as concerns over the worst banking crisis since 2008 cast doubt on the need for further action to reduce sky-high inflation.

Financial markets expect the US Federal Reserve to raise its main rate by 0.25 percentage points on Wednesday, down from predictions just two weeks ago for the US’s central bank to increase borrowing costs by twice that amount.