” Central banks don’t fight inflation, they prepare for the next crisis “. John Plassard, specialist director of macroeconomics and equity markets at Mirabaud, did he want to be provocative in pronouncing this sentence? Not necessarily. ” In March 2021, when inflation was still considered transitory by the US central bank, its boss, Jerome Powell, answered a journalist’s question that interest rates Fed-funds would therefore rise, inflation would no longer be transitory and in order to prepare for the next crisis. Already, the central banker kept in mind that it was necessary to preserve ammunition to face a possible crisis and to be able to lower the rates if necessary “recalls John Plassard, before tackling the European Central Bank. ” Unlike the Fed, the ECB has not admitted to being wrong about inflation. Above all, it did not understand the strategy of its American counterpart and today finds itself very late in the cycle of key interest rate hikes.
When the Fed has already raised the cost of money three times since March, to bring it to a new range from 1.5% to 1.75%, following a “jumbo” increase 75 basis points on June 15, the ECB has still not fired. The announcement of a first increase is expected for the July 21 meeting, an eternity in the current market environment. ” If Germany were to deprive itself of Russian gas, it would be guaranteed recessionsays John Plassard. However, the ECB has no ammunition on the rate front because it has not yet started raising them.. A 25 basis point hike seems to be in the works. Will it be sufficient? Very clever who can say it, but the market is pressing the Frankfurt monetary institution for a rise of 50 basis points.
Towards perfect parity between the euro and the dollar?
In the event of action deemed too soft, the euro, already well weakened against the dollar, could take an additional hit on the head and come to titillate the perfect parity with the greenback. Such a situation would only exacerbate inflation, the evolution of which no one is able to predict. The proof is: if the Fed raised the rate of Fed-funds by 75 basis points this month, it is because the consumer price index, unveiled a few days earlier, had accelerated to 8.6% over one year in May. This was a surprise, as the monetary institution was keen to guide the expectations of financial investors as well as possible. ” The Will the Fed take a break from rising 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 bankers. In the euro zone, the ECB expects inflation around 6.8% in 2022, then 3.5% in 2023 and 2.1% in 2024. Three estimates higher than its target of 2%.
The United States soon in technical recession
Regarding growth, it will be lacking. The United States could tip into a technical recession as early as the end of June. The Atlanta Fed’s GDPNow tracker now points to zero point growth for the second quarter. Given the 1.5% contraction in GDP in the first quarter, the world’s largest economy would fall into recession. ” Don’t be afraid of recessionrelativizes John Plassard. If we consider the period since the Second World War, recessions have become less severe, with an average duration of 11.1 months. »
PC