” Central banks are not fighting inflation, they are preparing for the next crisis “. John Plassard, director of macroeconomics and stock markets at Mirabaud, did he mean to be provocative by saying this sentence? Not necessarily.” In March 2021, when the US central bank still considered inflation to be transient, its boss Jerome Powell answered a reporter’s question that interest rates federal funds therefore, inflation will no longer increase temporarily and to prepare for the next crisis. The Central Bank already remembered that it was necessary to save ammunition in case of a possible crisis and be able to lower rates if necessary. “Remembers John Plassard before taking on the European Central Bank. ” Unlike the Fed, the ECB has not acknowledged its mistake on inflation. First of all, he did not understand the strategy of his American colleague and today it is very late in a cycle of raising the key interest rate.
With the Fed already raising the value of money three times since March to bring it to a new range of 1.5% to 1.75% after a “giant” 75 basis point hike on June 15, the ECB still hasn’t fired. The announcement of the first raise is expected at the July 21 meeting, an eternity in current market conditions. ” If Germany deprived itself of Russian gas, it would be guaranteed a recessionJohn Plassard says However, the ECB has no ammunition on the rate front as it has yet to start raising them.. A 25 basis point increase appears to be in the works. Will it be enough? Very clever, who could say it, but the market is demanding a 50 basis point raise from the Frankfurt Monetary Institute.
To ideal parity between the euro and the dollar?
In the event that the action is deemed too lenient, the euro, already heavily weakened against the dollar, could receive an additional blow to the head and lead to ideal parity with the US dollar. This situation will only exacerbate inflation, the evolution of which no one is able to predict. The proof is this: if the Fed raised the rate federal funds up 75 basis points this month, as the consumer price index, released a few days earlier, accelerated to 8.6% year-on-year in May. This came as a surprise as the monetary institution sought to meet the expectations of financial investors as best it could. ” Will the Fed take a break from raising rates in September? asks John Plassard.. Nobody knows, not even the Fed “What is certain, however, is that inflation will remain high for a long time. And higher than the mandate of central banks. In the euro area, the ECB expects inflation to be around 6.8% in 2022, then 3.5% in 2023 and 2.1% in 2024. Three estimates exceed his 2% target.
The US is in a tech recession
As for growth, it will be missed. The United States may face a technical recession as early as the end of June. The Federal Reserve Bank of Atlanta’s GDPNow tracker now points to zero growth in the second quarter. Given a 1.5% contraction in GDP in the first quarter, the world’s largest economy will fall into recession. ” Don’t be afraid of recessionrelativizes John Plassard. If we consider the period after the Second World War, the recessions became less severe, with an average duration of 11.1 months. »