Recession fears in the wake of rising interest rates and high inflation have been the name of the game for the first half of this year. It seems increasingly likely that the US, the UK, and Europe will end in recession if central banks hike too much – and I think for now they are on a path to hiking too much.
Completely agree, I have been hoping and praying these last few months that central bankers are just jaw boning and don't really believe their own pronouncements. Recent behaviour by them though indicates this is not the case, this means the risk of recession is increasing dramatically.
The only caveat, and where they might be right initially, is there probably was a fair bit of demand driven inflation due to the unprecedented fiscal stimulus throughout the western world. Of course that stimulus is now gone but the historical inflation numbers remain. Therefore in the end, they will wrong anyway as demand driven inflation fades with falling stimulus.
Nevertheless I have the distinct impression recession is coming. Possibly US first (unless Putin turns off the gas), then Europe (if he doesn't) and finally Australia, Canada and NZ after that.
I just read the news that Bank of England governor Andrew Bailey is threatening to increase the interest rate by by 0.5%. While he is not a economic genius (after his poor performance at the FCA), I am wondering why is every Central Bank rushing to increase rates if it is not effective to control supply side inflation? Is it that they do not have any other tool in their arsenal, so they just try what they can do? Or is there some disadvantage if one Central Bank acts contrary to what every other Bank is doing, so there is a herd effect? Or is it just the pressure to conform that is driving every Bank to do the same (wrong) thing?
While on Andrew Bailey, he was recently advising people to not ask for pay raise. Is this also a strategy for demand-driven inflation that is being deployed in the wrong battle?
I am not an economist, so I am not sure how the whole thing operates!!
Completely agree, I have been hoping and praying these last few months that central bankers are just jaw boning and don't really believe their own pronouncements. Recent behaviour by them though indicates this is not the case, this means the risk of recession is increasing dramatically.
The only caveat, and where they might be right initially, is there probably was a fair bit of demand driven inflation due to the unprecedented fiscal stimulus throughout the western world. Of course that stimulus is now gone but the historical inflation numbers remain. Therefore in the end, they will wrong anyway as demand driven inflation fades with falling stimulus.
Nevertheless I have the distinct impression recession is coming. Possibly US first (unless Putin turns off the gas), then Europe (if he doesn't) and finally Australia, Canada and NZ after that.
Grrrrrr
I just read the news that Bank of England governor Andrew Bailey is threatening to increase the interest rate by by 0.5%. While he is not a economic genius (after his poor performance at the FCA), I am wondering why is every Central Bank rushing to increase rates if it is not effective to control supply side inflation? Is it that they do not have any other tool in their arsenal, so they just try what they can do? Or is there some disadvantage if one Central Bank acts contrary to what every other Bank is doing, so there is a herd effect? Or is it just the pressure to conform that is driving every Bank to do the same (wrong) thing?
While on Andrew Bailey, he was recently advising people to not ask for pay raise. Is this also a strategy for demand-driven inflation that is being deployed in the wrong battle?
I am not an economist, so I am not sure how the whole thing operates!!