According to the CEO of the International Monetary Fund Kristalina Georgieva, loans in the United States have not yet decreased, so there is no doubt about the economic cooling. Therefore, the US Federal Reserve must continue to raise interest rates. Although this is often bad news for investors, Georgieva is right, according to US macroeconomist Philip Marey of Rabobank.
According to Mary, the fact that people continue to borrow money indicates how strong the US economy is
Federal Reserve Chairman Jerome Powell said early last month that banks would become more cautious about lending money after the collapse of Silicon Valley Bank, among others, which would in turn lead to a slowdown in the economy. “But so far we don’t see a lot of that,” says Mary. “So it looks like the reality is that we will eventually have to keep raising interest rates.”
According to Mary, the fact that people continue to borrow money indicates how strong the American economy is, stressing that the economy is dangerously overheated. “The only way to calm the situation is to raise interest rates,” he says. “This means that a recession may be on the horizon.”
Marey is well aware that interest rate increases have a slower impact on the economy, but he also believes that is the big problem. For this reason, Fed Chairman Jerome Powell wanted to take it easy, “and wait it out,” he continues. “But half of the ECB’s policy board wants to go further, so in this regard there is a good chance that the Fed will be forced to make up its mind.”
If the Fed does so, it becomes increasingly likely that interest rates will be raised too high, which would lead to a recession. “It’s difficult in any way to cool down the economy without causing a recession,” Marey says. “So it was an unrealistic starting point anyway.” But the chance of a recession increases this way.
Mary believes there is still plenty of room. The inflation rate in the United States currently hovers around five percent, as does the interest rate. “So in real terms – adjusted for inflation – the interest rate is still near zero,” Marey said. ‘So it doesn’t mean much. Overall, I think a full percentage point could be added, without it becoming exceptional from a historical perspective.
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