The Federal Reserve Chairman represents the US Federal Reserve’s interest rate hike.
(Photo: imago images/UPI Photo)
The Dax jumped up by 300 points just because inflation in the USA fell a little more than expected. In October it was now 7.7 percent and it is the third straight US inflation that has now fallen.
That’s the good part of the news. The bad news: Despite the decline, the rate of price increases will probably settle at a level that will be far beyond the central bank’s target of two percent.
The reaction of the financial markets shows once again how dependent they are on the central banks. The officials at the top of the monetary authorities are the market makers.
The hope that the Fed could moderate the interest rate hikes is enough to put the stock market players in euphoria. This is not a sign of stability: the opposite is the case.
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Inflation is and remains the big issue in the USA. And the Democrats can count themselves lucky that the side effects of the central bank’s fight against inflation have not yet been felt in their entirety.
Because the necessary adjustments will take place – sooner or later. An unmistakable sign of this is the seemingly historic upward momentum on the bond markets in recent months. As a result, mortgage interest rates will also rise sharply, which in turn will put real estate prices under pressure.
>> Read also: Star economist Olivier Blanchard sees a chance of falling inflation
And despite the short-term euphoria on the stock exchanges, the rule that sharply rising interest rates tend to be bad for shares is not invalid. Weak stock markets, in turn, could spoil the consumption, which is so important for the economy, for stock market-loving Americans. The decisive question will be how the labor market, which has been surprisingly robust up to now, will hold up in the end.
Only when inflation is under control will there be sustainable growth
One thing is certain: Like ECB President Christine Lagarde, Fed Chair Jerome Powell reacted too late and too hesitantly to the inflation dynamics – and unlike in Europe, inflation there is demand-driven and was also extremely accelerated by the government’s gigantic support packages.
In this respect, it is not bad news for the US economy if a Republican majority in the House of Representatives now puts limits on the President’s exorbitant willingness to spend.
Because only when inflation is really under control are the prerequisites for a healthy upswing in place. The fact that the way there will be painful ultimately has to do with the fact that politics, business and above all the central banks have settled comfortably in a world that, from an economic historical point of view, is more the exception than the rule: 15 years with hardly any measurable inflation, money for free, at least partly moderate growth rates.
That world no longer exists, and weaning yourself off that world will not only most likely result in a recession, but will also cause major friction well beyond the United States.
More: Inflation rate in the USA is surprisingly declining – Dax is skyrocketing