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In the United States, the return of inflation was confirmed by the latest figure published yesterday Wednesday: in December 2021, the rise in prices reached 7% at an annual rate. Unheard of for forty years. Central banks are mobilized to quell this outbreak. An action that is not without risk.
This is the role of the central bank, more precisely of the American Federal Reserve (Fed), since inflation is above all an American phenomenon for the moment. Prices are also soaring in the United Kingdom and the Bank of England has already drawn by raising interest rates slightly. But given the importance of the US economy and the dollar in world trade, it is above all the action of the Fed that will be closely monitored.
Its remedy, the rise in rates: it is the fatal weapon against inflation. A weapon that can also be lethal, since by increasing the cost of money, economic activity is slowed down. A central bank that hastens to play the firefighter to quell the rise in prices can find itself in the position of the arsonist who destroys the economy and thus plunges the country into recession.
One of the Fed governors thinks it could resort to four rate hikes in 2022
The Fed communicates a lot to prepare investors and avoid panic, moreover it works rather well, since the figure published on Wednesday left the markets indifferent. They had in mind the previous announcements of Jay Powell, the governor of the Fed. What will complicate the task of the world’s leading fundraiser is the attitude of his colleagues, who are used to following the path laid out in Washington sooner or later. But for the moment their interests are divergent.
In Europe, the ECB does not plan to raise rates
She says that the rise in prices will remain contained. And if it is in no hurry to raise rates, which could cut off the momentum of the recovery, it is also because certain Member States of the euro zone could suffer. We must at all costs avoid the return of the debt crisis; it could resurface if interest rates rise too quickly and suffocate the weak links.
Italy, one of the most indebted countries in the euro zone, will be the barometer of the year 2022 faced with inflation. Finally there is another major player which is against the current and it is unusual, it is the People’s Bank of China. It, too, has traditionally gone the way set by the Fed, but this time it’s different. With the serial bankruptcyEvergrande the real estate giant, it fears contamination to the economy and is careful not to slow down the machine, on the contrary, it will support the Chinese economy by injecting liquidity.
There is therefore enough to further fuel speculation on the markets
Absolutely: silver continues to be cheap in large parts of the world. It’s good for the stock market. And this also benefits cryptocurrencies. These new hyper-speculative assets certainly took a heavy hit at the start of the year with the return of soaring prices. But they have also become anti-inflation shields, especially in emerging countries, where households and companies distraught by rising prices and falling currencies invest part of their savings in bitcoin or its avatars. The Turks, for example, favor tether because it is backed by the dollar.