Since Silicon Valley Bank (SVB) collapsed last week, the US central bank, the Federal Reserve, is now in a difficult position. Inflation is still high in America, but given financial instability, sharply raising interest rates to curb inflation has become less of a logical step. Although, according to BNR’s in-house economist Han de Jong, that’s what the Fed should be doing.
“The Fed must and will simply continue the fight against inflation, not stop and certainly not step back. Although I don’t think they will implement an interest rate hike of half a percentage point next week, so I will keep it at a quarter of a percentage point,” De Jong explains.
financial stability
ING chief economist Marieke Blom also sees that things have gotten much more complicated for the Fed since the fall of the SVB. “For the Federal Reserve, inflation control is very important, but the most important thing is the preconditions for financial stability.” According to Blom, there is also the possibility that the Fed will do nothing due to the uncertain circumstances. “But we think they will do something about it.”
De Jong says it will also lead to some turmoil if the Federal Reserve now chooses not to raise interest rates at all. “If suddenly you don’t do anything now, admit that something is wrong. This could also be a message they would rather not send. That’s why I think it’s likely they will continue with rate hikes.’
The European Central Bank
The European Central Bank (ECB) will announce possible rate hikes on Thursday. ECB President Christine Lagarde previously said that a half percentage point rate hike is likely. Blom thinks the ECB will stick to this decision.
‘The ECB has already issued several messages on several occasions, which sometimes makes it difficult for the market to anticipate them. It is also very important for the credibility of your communication to create clarity,’ explains the chief economist of ING.
“If I go into the inflation numbers I would say we have a persistent problem”
According to De Jong, the European inflation figure for February was also a setback. “So I would say if you dive into the inflation figures, we still have a more persistent problem.” But the ECB started raising interest rates later than the Fed and is therefore somewhat behind, BNR’s in-house economist. “So far the ECB has raised interest rates by three percent and the Federal Reserve by 4.5 percent.” De Jong therefore sees no reason for the ECB to refrain from raising interest rates by fifty basis points.
Source: BNR
Andrew Dwight is an author and economy journalist who writes for 24 News Globe. He has a deep understanding of financial markets and a passion for analyzing economic trends and news. With a talent for breaking down complex economic concepts into easily understandable terms, Andrew has become a respected voice in the field of economics journalism.
