After a succession of monetary tightenings to combat inflation, interest rates on both sides of the Atlantic may soon have peaked. This is also related to the recent bank quake, which, according to US Federal Reserve Chairman Jerome Powell, tightened credit conditions, relieving the central bank of part of its duties.
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| Frankfurt, Germany where the headquarters of ECB is situated |
Like the European Central Bank (ECB), the Fed also wants to raise the price of money and thus slow down the general economic demand and thus keep inflation under control. After the ninth consecutive increase in the US interest rate and currently at 4.75-5.00 percent, the air is getting thinner at the top: "Obviously, maximum interest rates are here," said Bernd, an economist at Commerzbank. Weidensteiner and Christopher Balz.
It also contains an updated so-called point, ie. the expectations of members of the Federal Reserve about the appropriate interest rate. They aim to reach a base rate of 5.1 percent by the end of 2023. According to Bernd Krampen, an analyst at NordLB, the US is increasing: "The end of interest rates may come soon, if inflation allows it." Already on May 3 - at the next interest rate meeting - it could have risen to the top.
DIW Director Marcel Fratzscher notes that the Fed decided to slow rates after global capital markets appeared to have weathered the turmoil surrounding the extraordinary takeover of Swiss bank Credit Suisse without major problems.
But even if there is no threat of a major financial crisis, the threat of an American recession has not been averted. It is also important for the Federal Reserve to remember that while interest rates continue to rise, the increases will take effect with a delay. According to Thorsten Polleit, chief economist at Degussa Goldhandel, the unintended consequences of a sharp rise in interest costs can be seen in a relatively short period of time, such as the recent turmoil in the US banking market and emergency loans issued by the central bank. . to give to individual banks.
ECB RATE RISE TAKES A BIT
According to ECB President Christine Lagarde, the interest rates to fight high inflation will gradually have an effect in the euro area as well. "Borrowing costs are rising significantly and the dynamics of lending seem to be slowing down faster than in previous rates," he noted recently. After July 2022, interest rates have already risen six times, a total of 3.50 percentage points. According to experts, the banking earthquake in the United States, which also sent the shares of financial institutions in the euro area to the basement, may even have an additional dampening effect. Klaas Knot, a Dutch member of the ECB Council, believes that it is possible that the interest rate path still needs to be reassessed.
"After the current events, the ECB will at least keep the tightening of monetary policy, even if inflation is still not fully in line with the target," believe bond experts Sam Vereecke and Lowie Debou of the asset manager Degroof Petercam Asset Management ( DPAM). The European Central Bank would rather be prepared and wait for the full impact of monetary policy than regret anything. "The objective of the ECB is to reduce the probability of a wrong decision, so that monetary policy is not loosened more than what was subsequently tightened." The ECB last raised interest rates by 0.50 percentage points in mid-March, despite the turmoil.
HIGH INTEREST RATES IN THE EUROZONE AT 3.4 PERCENT?
In the financial market, the trend behavior deposit that banks receive from the central bank for parking excess funds is currently 3.00 percent. According to Bundesbank President Joachim Nagel, according to inflation forecasts, further increases should follow in future meetings. According to their latest forecasts, ECB economists still expect this year's inflation to be 5.3 percent, which would still be well above the ECB's 2.0 percent target.
But the big question is how big are the next steps. "Right now there is a lot to talk about with a 25 basis point increase on May 4," LBBW experts write at the next rate meeting. In the money market, investors curbed speculation about new interest rates. There, interest rates are expected to peak at around 3.4 percent in the summer. Even before the market turbulence, an interest rate peak of more than four percent was expected.