The inflation rate of 7.9 percent, as observed in the United States this February, is the highest in the last forty years, writes Deutsche Welle. However, that is too much for the US Fed: last week it was decided to introduce aggressive measures to curb inflation. This means an increase in the discount rate, as well as a reduction in the amount of money in circulation up to 95 billion dollars – per month ! , reports B92.net
The US Federal Reserve never announces in advance what the key interest rate will be, which is why current Fed Chairman Jerome Powell is silent about it. Also, traditionally, the “world of money” always guesses what the Fed will say and do, so the CME Group, the world’s largest stock exchange of financial derivatives, even has the Fed Watch Toll instrument that tries to predict decisions. of the custodian of the US dollar.
According to that instrument, the US discount rate will increase by at least 50 points in May, to 0.75, and possibly 1 percent. That will not be the end either: at the next Fed Council meetings in June and July it will continue to grow, possibly by up to 2%. It could reach 2.75% by the end of the year.
The people from the Central Bank rightly claim that this inflation is not a consequence of the “overheating” of the economy, but it is primarily a measure against the pandemic, and then Russia’s attack on Ukraine. The enormous increase in the prices of raw materials and the difficulties in delivery have caused a rise in prices, which is why something must be done. Otherwise, inflation would rise even more.
The dark side of the coin of these anti-inflation measures is the “suffocation” of the economy: investment money becomes more expensive, and instead of the stock market, the purchase of government bonds will pay off again – which means that turnover and stock prices will fall. And it’s hard to say how far that will go: Deutsche Bank is essentially the first major bank to dare to announce that it has about a 20 percent chance of a stock market crash and recession this summer.
The US Fed’s decisions raise another question: what does the European Central Bank do? Or rather, why is he still not doing anything? Already this March it could be heard that the discount rate should start to increase, and now the President of the Austrian Central Bank Robert Holzman claims that the Europeans will stop the policy of zero percent discount rate at the end of the summer.
It is well known that interest rates, especially for savings on sight, are never higher than the rate of inflation. Therefore, it is clear why commercial banks have already started to include inflation in their loans. Last year the interest rate on a 10-year mortgage loan in Germany was around 1 percent, and now it is over 2 percent. And it will hardly be smaller. Only the European Central Bank still adheres to free money policy – and it is slowly becoming dangerous.