Rates, the Fed raises by 25 points to counter inflation
Rarely had such a volatile, “liquid” and full of surprises period of the world economy been seen. In the last month alone, the ECB raised interest rates by half a point because according to Christine Lagarde “there is still too much inflation which is lasting for a long time”. While on the subject of the crisis of the banks the number one confirmed that “The European ones are not very exposed”. Despite the Credit Suisse earthquake a couple of weeks after the Lagarde herself confirmed that the ECB is “perfectly equipped to maintain the liquidity needed in the euro area and what happens or could happen in Switzerland does not represent the standard of Europe”.
So, as far as the old continent is concerned, everything would seem to be in order, while in the United States the two prominent bankruptcies (Silicon Valley Bank and Signature Bank) have forced Joe Biden’s government to run for cover with exceptional measures. Exceptional and apparently decisive for current account holders and for the market. What economic observers were wondering is how the Fed would react. Will it continue its policy of raising interest rates or will it try to slow down? And Jerome Powell’s response was clear, an increase of only 25 points because inflation is still the number one enemy even in America.
Rates, the domino effect of American banks does not scare the Fed
In truth, inflation has been the dominant theme of its meetings for two years, until a few days ago when bank crashes and the possible domino effect forced the institute to concentrate on the actions to be taken. Most analysts would have bet on the ninth consecutive increase of 0.25 points. Some analysts, on the other hand, were thinking of a stop in the rate hike and among these there was a “ninety caliber” like Goldman Sachs who imagined “a pause in the light of the recent tensions in the banking system”. They have lost the bet because it is now clear that despite the two illustrious cracks of Silicon Valley Bank and Signature Bank, inflation, despite a slight slowdown, is considered enemy number one It still stands at 5.5% too high compared to the 2% stability target The increase was only 25 points in February, after four bursts of 75 points and a subsequent 50. But record US employment data and ever-buoyant inflation are keeping the Federal Reserve on their toes.
Rates, never after the 80s a cost of money so high
In less than a year, official interest rates have risen from 0% to 4.5-4.75%, the highest level since 2007. Such a high cost of borrowing has not been seen since the distant 1980s. What happened yesterday in the Fed is the same action taken by the Bank of England and the ECB, with an increase of 25 points to control the inflationary trend and liquidity to calm the markets. Two other important economic observers such as Bank of America and Oxford Economics believe there will be a mild recession in the US economy in the third quarter. President Jerome Powell has repeatedly said he doesn’t want to repeat the mistakes of the late 1970s and early 1980s, when the institution halted hikes but was then forced to resume hikes. So clear enough words for “careful ears”. The bull run is probably not over yet.
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