“Further rate hikes risk being ineffective and a harbinger of economic disaster at the end of the year”

En addition to the current, threatening, tragic, and by definition unpredictable geopolitical dangers, the forecasts of economists and central bankers plunge us into regrettable uncertainty. To the ambient anxiety, they add a formidable inconsistency.

In January, they predicted a recession, a cooling of inflation, and therefore a moderate rise in interest rates, which led to a sudden rise in equities. But two months later, the scenario is reversed: the risk of recession has vanished with the wave of a magic wand, inflation is rebounding, due to an overheating of the labor market in the United States (a rate of unemployment deemed too low, at 3.6%) and the increase in rates that the American Federal Reserve (Fed) will decide on March 21 and 22, formerly planned for 0.25%, would rise to 0.50%.

But Monday, March 13, it was again 0.25% which was announced. And hell! Because of the bankruptcy of the Silicon Valley Bank, after the 0.50% hike announced by the European Central Bank (ECB) on March 16, there may not be a Fed hike at all…

Forecasts contradicted the next day

Proof that rate hikes are not a panacea, and weaken the financial system. Something to confuse us. The art is, it is true, difficult – inflation, employment, growth, interest rates and financial stability form a hellish network of communicating vessels.

The market consensus anticipates rate hikes until this summer, then a plateau until the end of the year, before a gradual decline concomitant with a drop in inflation in 2024, automatically boosting the stock markets.

Read the column: Article reserved for our subscribers “In wanting to bring down inflation, many observers are wondering if the Fed is not in danger of triggering a recession”

As each forecast is called into question the following month, this pink scenario of a soft-landing (“soft landing”) – a utopia in economic history – will it happen? Nothing is less certain, despite the optimism expressed by Olivier Blanchard, professor at the Massachusetts Institute of Technology and former chief economist of the International Monetary Fund. Especially since economies at war are generally inflationary; so is the new international division of labor aimed at relocating industries closer to places of consumption – the pharmaceutical industry is already demanding price increases to manufacture its products in France; finally, the energy transition will be costly.

“If you understood me, it is that I expressed myself badly”, said the chairman of the Fed (from 1987 to 2006) Alan Greenspan, in the style of Woody Allen. A little less declarations would bring a little calm, instead of tossing us around every month with forecasts that are themselves contradicted the next day. But knowing how to be silent in our media civilization is a difficult art.

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