The central bank will continue to tighten its monetary policy – this brings new risks for the capital markets.
(Photo: dpa)
The bad news doesn’t end there: In August, the inflation rate rose to 7.9 percent and was thus a bit higher than feared anyway.
It will not be the peak: it is already clear that prices will continue to rise sharply in September, when government price reductions for fuel and passenger transport are eliminated or reduced.
This is bad news for the European Central Bank, which, together with the US Federal Reserve, has just made it clear that fighting inflation is their top priority, regardless of the economic side effects of fighting inflation, including a recession.
These statements at the traditional class reunion of central bankers in Jackson Hole gave the markets a great fright – and rightly so.
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More and more economists are assuming that inflation rates will remain much longer and much higher than originally forecast by central bank models. But that also means that the fight against inflation will become a permanent task.
Central banks concentrate on securing purchasing power
Investors would do well to take the Fed and ECB’s demonstrative determination seriously. After the various rescue operations during the financial crisis and the pandemic, the large central banks have now realized that they have no choice but to concentrate on their original mandate of securing purchasing power. Otherwise, monetary policy as a whole risks losing its credibility.
Permanently higher interest rates would be pretty bad news for the markets. That’s the real reason investors around the world have been pulling out of riskier asset classes over the past few days.
Estimates of the losses that stocks, bonds, precious metals and cryptocurrencies suffered worldwide after Jackson Hole last Friday and Monday add up to as much as $10 trillion. It may not have been the last setbacks, the recovery on the European stock exchanges on Tuesday cannot hide that.
The situation in the euro zone and the emerging countries is particularly difficult: the monetary union, because the risk of a serious economic crisis is significantly greater here than in the USA, and the emerging countries, because rising US interest rates and a stronger dollar are making debt servicing more expensive.
But there is no doubt: the much tighter monetary policy will take its toll around the world.
More: Inflation in Germany rises to 7.9 percent – economists expect high inflation for a long time