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In the United States, the return of inflation was confirmed by the latest figure published yesterday Wednesday: in December 2021, the rise in prices reached 7% at an annual rate. Unheard of for forty years. Central banks are mobilized to put down this outbreak. An action that is not without risk.
This is the role of the central bank, more precisely of the American Federal Reserve (Fed), since inflation is mainly an American phenomenon for the moment. The prices are also soaring in the United Kingdom and the Bank of England has already drawn by raising interest rates slightly. But given the importance of the US economy and the dollar in world trade, it is above all the action of the Fed that will be closely monitored.
Its remedy, the rise in rates: it is the lethal weapon in the face of inflation. A weapon that can also be lethal, since by increasing the cost of money, we slow down economic activity. A central bank which hastens to play firefighter to put down the rise in prices can find itself in the position of the arsonist who destroys the economy and who thus plunges the country into recession.
Fed governor thinks it could resort to four rate hikes in 2022
The Fed communicates a lot to prepare investors and avoid panic, moreover it works rather well, since the figure published on Wednesday left the markets indifferent. They had in mind the previous announcements of Jay Powell, the governor of the Fed. What will complicate the task of the world’s leading financier is the attitude of his colleagues, who have a habit of following sooner or later the path traced in Washington. But for the moment their interests are divergent.
In Europe, the ECB does not plan to raise rates
She says the rise in prices will remain contained. And if it is not in a hurry to raise rates, which could cut off the momentum of the recovery, it is also because certain member states of the euro zone could suffer as a result. We must at all costs avoid the return of the debt crisis; it could resurface if rates rise too quickly and suffocate the weak links.
Italy, one of the most indebted countries in the euro zone, will be the barometer for the year 2022 when faced with inflation. Finally, there is another major player who is against the grain and this is unusual, it is the People’s Bank of China. It too traditionally follows the path traced by the Fed, but this time it’s different. With the series of bankruptcyEvergrande the real estate giant, it fears contamination of the economy and is careful not to slow down the machine, on the contrary, it will support the Chinese economy by injecting liquidity.
There is therefore enough to feed further speculation on the markets.
Absolutely: money continues to be cheap in large parts of the world. It’s good for the stock market. And that also benefits cryptocurrencies. These new hyper speculative assets certainly took a massive blow at the start of the year with the return of the surge in prices. But they have also become anti-inflation shields, especially in emerging countries, where households and businesses distraught by rising prices and falling currency invest part of their savings in bitcoin or its avatars. The Turks, for example, prefer tether because it is backed by the dollar.
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