Within two days, no less than five central banks will announce their interest rate decision. Tonight, it is the turn of the US Federal Reserve, and tomorrow it will be followed by the Norwegian and Swiss central banks, the Bank of England, and the European Central Bank.
“An exciting week, right before the Christmas holidays,” says Joost Derks, currency expert at IbanFirst. “It’s usually quieter.”
Low inflation in the United States
It was announced yesterday afternoon that consumer prices in America rose 0.1%, the lowest rate of inflation in almost a year. The question is what effect this will have on upcoming interest rate decisions. “Immediately after those numbers came out, you saw that the markets started to get a handle on the Fed’s smaller steps. You saw that right away in the exchange rates.
Therefore, the Federal Reserve is expected to decide tonight to raise interest rates by half a percent. “They point out that the risk of inflation is greater than the risk of recession,” Dirks says. “Recession can be addressed with rate cuts, but inflation is much more difficult.”
This problem also occurs in the eurozone, where “ever-high” inflation must also be reduced. So Dirks expects the ECB to raise interest rates by half a percent here as well. “There is also a chance that interest rates will go up by 0.75 percent, just to bring down inflation.”
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In order to get the economy going again, Dirks says, cooperation between central banks and the government is needed. We have seen in the UK that the consequences of poor cooperation can be catastrophic. Fortunately, this collaboration is now beginning there.
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