Author's Contributions
Transition Phase
So far this year, high inflation rates have been the driving factor on the financial markets. This could now change, as Chief Economist Gerhard Winzer writes. Disappointingly weak indicators of economic activity could now increasingly come into focus.
One month is not yet a trend
The rise in inflation in the USA was recently lower than expected, which led to a significantly brighter mood on the markets. However, a favourable inflation report is not yet a trend, as Chief Economist Gerhard Winzer emphasises.
Reduction in the pace of key interest rate increases
More and more central banks are signalling a reduction in the pace at which they are raising key interest rates. However, as Chief Economist Gerhard Winzer explains, this does not necessarily mean that central banks are softening their focus on fighting inflation. Rather, a pause in the rate hike cycle would require a change in inflation dynamics.
Strong US dollar increases pressure on Japan’s central bank
The soaring US dollar is causing problems in countries outside the USA. In Japan, the Yen has weakened considerably recently because, unlike the other central banks, the Bank of Japan is sticking to its ultra-loose monetary policy. Against this backdrop, the meeting of the Japanese central bank next Friday will be more in focus than usual.
Inflation rates (still) too high
The inflation problem continues to preoccupy the central banks. They are likely to maintain their basic restrictive stance until inflation rates have convincingly embarked on a downward trend.
Fed remains on course
The latest US labor market data suggest that the Fed will remain on its course of more restrictive monetary policy. “As long as job growth remains strong and unemployment and participation rates remain low, the Fed will maintain its basic restrictive stance”, writes Head Economist Gerhard Winzer in his market commentary.
Excessive Pessimism?
The unexpectedly high inflation rates draw even wider circles. In view of the pessimistic mood, the question arises whether the negative environment is already being reflected by market prices.
Rapid and synchronous key rate hikes
Central banks are responding to high inflation by raising key interest rates. Further key rate hikes are likely this week as well.
Monetary tightening even as growth slows further?
Last week, three major central banks have raised their key interest rates further. By nature, however, it is not easy to find the right key interest rate level – especially in the current environment.
For some time valid: Elevated recession risks and restrictive monetary policy
The central banks want to achieve their long-term inflation target of 2%. In order to achieve this goal, they have raised key interest rates and are implementing a restrictive monetary policy. The higher key interest rates will weaken economic growth and also the labour market. Whether this can be achieved without a recession or whether there will be a “soft landing” is currently the subject of heated debate.