Later this week, the European Central Bank (ECB), the US Federal Reserve (Fed) and the Bank of Japan (BOJ) will announce new interest rate decisions. And what happened in Canberra and Ottawa last week could lift a corner of the veil.
‘There they decided to raise interest rates and it doesn’t seem to be new. Yet it is special
“There they decided to raise interest rates,” Mujagic says, “and while that in itself doesn’t sound like anything new, it’s still special.” The economist points out that the central banks of Australia and Canada were the first to raise interest rates at the time. “So you’d expect them to be the first to stop now.”
So they don’t. Indeed: ‘Both have stalled in recent months with interest rate hikes to see how previous hikes would work. Now they have come to the conclusion that it was not enough and that they had to continue».
There’s no time for a break
According to Mujagic, there is a lesson for Europe and the United States in this. «Because here too the word ‘pause’ is often used. While those countries have shown us that the decision has come too soon. I am also afraid that there is no room to stop and that we should skip the whole discussion. If that’s not enough, keep it up.’
Mujagic realizes this has led some to fear that subsequent rate hikes will hit the economy hard. “It’s a bad message, but that’s how it works,” he says. ‘You can’t say: I want to stimulate that economy to grow at all costs and at the same time also fight inflation. Unfortunately, those two don’t go together.’