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Thursday, September 29, 2022

Inflation and the Fed raises the limit for rate hikes around the world

Interest rates in the world’s largest economy are already at their highest level since 2008, at the start of the financial crisis, with the big difference that the US is facing a new economic crisis with the potential for the price of money. would still be the highest. The world’s major central banks underestimated the persistence of price increases that began after the pandemic, with the economy reactivating after months of paralysis, and which worsened in recent days with the war in Ukraine at a rate not missed. has occurred. forty years. Now it is their turn to tighten their policies, at the frantic pace of rate hikes aimed at propelling growth, although neither the Fed nor the ECB has yet recognized this.

The absolute priority is to contain the rise in prices to the point where growth of 75 basis points has become the new normal. “75 is the new 25”, he says to Pimco, the world’s largest debt manager. Thus, the Fed raised rates this Wednesday for the third time in a row by 75 basis points, with the generality that they would have had a more gradual increase of 25 basis points in the past. The ECB decided to increase the rate by 75 basis points on 8 September and the Bank of England yesterday approved a half-point hike with only five votes in favor of 75 with three more votes in favor.

The strength of the monetary fight against inflation lies not only in the intensity of rate hikes, but also in those that are yet to come. The Fed has announced a new horizon for which it will lead the price of money: 4.4% at the end of this year, 100 points higher than June estimates, and up to 4.6% next year. For ECBs, which do not give interest rate forecasts, the market points to them moving the deposit facility from 0.75% to 3% in 2023. And for the Bank of England, futures point to growth at 4.75% next year, up from 2.25% yesterday.

In the face of such aggression, markets are already anticipating a recession, which the Fed and ECB are still reluctant to acknowledge. “It is optimistic to think that the recession is averted and any chances of a soft landing have disappeared”, he points to Schröders regarding the latest Fed decision. According to the British firm, a “recession will be necessary to control inflation”, so they expect US GDP to shrink by about 1% in 2023 and the Fed has halted rate hikes at 4%.

For David Page, director of macro analysis at fund manager AXA IM, “the Fed points to new growth, but the growth outlook is very benign.” There is an idea that they also defend against Pimco. Tiffany Wilding, economist at Manager North America, says that “although the Federal Reserve did not forecast a contraction in real GDP over its forecast horizon, it appears that the economic contraction, and a more significant increase in the unemployment rate, may in fact What needs to be done to bring down inflation?

The Fed’s message on the rate horizon on Wednesday was harsher than many analysts expected, in a fresh attempt by Jerome Powell to rein in inflation expectations and after months during which the Fed went behind market forecasts. The rate range of 4.5-4.75% in 2023 is well above forecasts handled by Citi, which has adjusted its forecasts upwards and now expects a rate increase of 75 basis points in the US, up from 50 in December and February. in 25. This is the same growth path that Goldman Sachs envisioned. However, in AXA, they expect a half-point increase to 4.25% in November and December, as growth shrinks more quickly.

Japan is the only exception among already developed economies in the wave of interest rate hikes. The Japanese central bank kept the currency’s price unchanged at -0.1% on Thursday. Not so is Switzerland, which decided to leave the negative base eight years after the price of money was at negative base, up 0.5%, up 75 basis points.

The reason for this increase is also inflation, despite the fact that in Switzerland it is much higher than in the US or the euro area, with a rate of 3.5% in the month of August. Norway also raised rates yesterday by 50 basis points to 2.25%. It was the first of the Western central banks to pick them up and is now pursuing “more gradual” growth.

World Nation News Desk
World Nation News Deskhttps://worldnationnews.com/
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