The horrendous inflation makes interest rate hikes inevitable. And even if this brings another recession, this bitter pill has to be swallowed now.
The world is once once more on the brink of recession. That’s what the chief economist at the International Monetary Fund said on Wednesday, following the fund had noticeably reduced global growth expectations for this year the day before. If the expected gas stop by Russia now comes regarding, a decline in economic output can be expected, at least in the industrialized countries of the West.
Another important reason for the weakening of the economy is the tightening of monetary policy, which is taking place particularly rapidly in the USA. The US Federal Reserve raised interest rates once more by 0.75 percentage points on Wednesday evening. This should finally bring the horrendous inflation of 9.1 percent in June under control. At the same time, however, this is also causing the economy to cool down significantly, because credit-financed investments are declining significantly.
The turnaround in interest rates that savers have been waiting for for a long time will also lead to a slowdown in Europe. And if unemployment then rises once more, political pressure is likely to increase not to overdo the tightening. In any case, central bankers should resist this pressure. Because the current slowdown is just the economic minus of the corona pandemic that was postponed by loose monetary policy.
At some point, however, the bill will have to be paid for this policy, which is entirely justified in the crisis. And the longer that is postponed, the higher it will be.
