Inflation risks in the US could hold

Federal Reserve: Possibility of a 50- or 75-point rate hike at the end of July –

At its last meeting in mid-June, the Federal Reserve decided to raise interest rates by 0.75%. The minutes revealed the need to maintain the rate hike as inflation expectations worsened.

Therefore, the Fed remains directed to aggressively pursue its restrictive maneuver. According to US central bankers, “the economic outlook justifies a move toward the restrictive policy line.” And they “recognize the possibility that if high inflationary pressures persist, a more restrictive line may be appropriate.”

High inflation was and still is the number one problem for the US central bank. So much so that in the guide “many participants believed there was a significant risk of seeing high inflation become more persistent if the public began to question the Committee’s intention to adjust monetary policy as appropriate.”

Parity in the exchange rate of the euro against the dollar –

A new slide and a new twenty-year low in this part of the euro against the dollar: the single currency ended up below 1.02 on the dollar while other clouds are gathering on the eurozone economic prospects.

Indeed, the eurozone, along with other EU countries, was already blaming the strongest repercussions of the war in Ukraine and sanctions against Russia, exacerbating sharp increases in energy prices. And now, to this problematic picture, the latest volatility regarding oil and natural gas has been added.

Thus, in addition to the discrepancy in the interest rate dynamics between the US Federal Reserve and the European Central Bank, which may be more cautious in normalizing it due to the weakness of the economy, the exchange rate of the euro against the dollar also appears. To be affected by the difference in higher energy prices in Europe.

During trading, the common currency fell to $1.0167, a new low since the end of 2002.

The European Central Bank is expected to raise interest rates for the first time in 11 years at the Governing Council on July 21. With that, the US Federal Reserve is moving faster and more aggressively in raising interest rates, which have already been raised in the US to 1.50% while in the currency area they are still zero. However, the ECB’s rise in July was only announced by 0.25 percentage points.

Leave a Comment