The fight against inflation in rich countries 5
Economies with a scale of trillions of dollars are busy in the fight against inflation, with the coordinating role falling to central banks.
This is the first time since 1994 that the Fed has raised interest rates at this level.
Politico said that the Fed’s new positive actions seem to be aimed at reassuring the public – who always consider inflation one of their top concerns.
Powell believes there is still a way to avoid a full-blown recession.
Powell admitted that the Fed is not only withdrawing support policies applied during the pandemic, but actually has a plan to curb overheating growth.
Fed headquarters.
Inflation concerns also caused many other central banks to follow in the Fed’s footsteps.
The European Central Bank (ECB) announced an emergency meeting and ended its bond buying program.
Disturbance in central banks’ policies has led to turmoil in the market.
Bond yields are rising.
The Economist argues that chaos is brewing as central banks try to achieve conflicting goals.
The general formula for how central banks should respond to inflation is to raise the base interest rate.
Meanwhile, the ECB faces an even more difficult situation.
The ECB said it would not accept the threat such a crisis posed to the integrity of the eurozone.
In Japan, the Central Bank (BOJ) is making economic trade-offs to maintain policy stability.
The pressure on the BOJ increased as inflation escalated domestically, other central banks raised interest rates and the yen price dropped to a 24-year low compared to the USD.
In this situation, the solutions adopted by central banks in the past decade have not worked.
Along with that, reversing monetary policy is a rare move, because the management agency does not want to surprise the market by deviating from the announced plan.
The Economist believes that limiting unplanned changes has caused central banks to slow down.
In the remaining four meetings this year, the Fed plans to raise interest rates to a range of 3.25% to 3.5%, much higher than before.
For now, the Fed hopes US inflation will increase to 5.2% this year and decrease to 2.6% next year.
