The Federal Reserve, the US umbrella body for central banks, is expected to announce further interest rate hikes this evening in the face of higher inflation in the United States. Financial markets are eagerly awaiting the outcome, which may go further than previously indicated.
According to Jasper Lukason, editor-in-chief of ESB magazine, a major increase is expected. “The general consensus is that most analysts expect a -75 basis point increase to 0.75 percent, so those expectations have risen sharply because last week they were still thinking about half a percent.
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Lukeshan believes the central bank has decided to sharply raise interest rates on the back of bad inflation last Friday. It’s not just about this increase, it’s about the additional increase in June. At first they thought nothing would happen in June, but now expect a further 0.75 per cent increase in July. So all of a sudden it’s very fast. ‘
The biggest increase not seen in 22 years
When interest rates rose by fifty basis points, decisions were made following the previous decision in May. The biggest increase in 22 years, but will the new increase be enough to reduce inflation? ‘Probably,’ Location continues. ‘But it will take some time. If you want to reduce inflation by a sharp rate hike, you really have to push the economy into recession. Due to the economic boom, it was very painful.
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Painful, but not history. Lukashen thinks that then-central bank chairman Paul Volker raised interest rates at the same pace in the 1980s. ‘He was then able to reduce inflation, but on top of that came the recession.’
If the central bank decides to raise interest rates to that level, Lukashen thinks the European Central Bank should follow suit. However, not at the same speed, but it increases the pressure on the ECB. European central banks have already said they will raise interest rates by 50 basis points in July, but there is pressure from all quarters to raise interest rates soon. If there’s a need to control inflation, we’ll definitely take care of it if the U.S. economy cools down. ‘
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