My dear impertinents, dear impertinents,
After a month’s absence, I am very happy to have you back to comment on the exciting and rich news. We are also happy to try to share with you analyses, reflections, expectations to enlighten you in your choices, your strategies, and to help you improve your personal strength.
Obviously I have a lot to say and tell you about this start of the school year, let’s say more precisely in this pre-start!!
I would suggest that we talk about inflation first. We’ll have plenty of time to detail all of this in the coming days.
“For the ECB, inflation must be fought, even at the risk of weaker growth and higher unemployment”!
The conclusion is simple.
The ECB prefers recession to inflation.
At the end of the theory.
Let’s take from the Capital article here.
“Faced with the ‘path of caution’, we must defend the ‘path of determination’ which consists of ‘reacting more strongly to the current surge in inflation, even at the risk of weaker growth and more high unemployment”, pleaded on Saturday August 27 Isabel Schnabel, member of the executive board of the European Central Bank (ECB) during the meeting in Jackson Hole, in the United States. Three factors plead in favor of this option, he explained to the annual high mass of central bankers in the American West: “uncertainty about the continuation of inflation, threats to the credibility of the central bank and the potential cost of moving too late” against rising prices, according to his speech posted online by the ECB. Banque de France Governor François Villeroy de Galhau also defended the decisive action of the ECB.
“We can do a gradual way, but we should not be slow and delay normalization (of monetary policy, editor’s note) until higher inflation expectations force us to aggressive rate increases,” he said. . “Bringing inflation down to 2% is our responsibility; our will and ability to deliver on our mandate commitments is non-negotiable,” said the governor, according to his speech obtained by AFP. On Friday, US Federal Reserve Chairman Jay Powell warned that a return to price stability “will take time” and “will lead to a long period of weaker growth”. Consumer price inflation in the euro zone reached a record level of 8.9% a year in July.
The FED has been raising its rates quickly and the ECB will eventually have to follow suit faster than it would like. In addition, rumors are now widespread of a 0.75% increase in ECB rates at its next meeting.
So is it enough to break inflation?
Because if the price goes up, it’s not because the demand is strong, but because the supply is insufficient.
If there is no more sunflower oil, the price will go up, so will gas.
Raising interest rates will not change the fact that we refuse to buy Putin’s gas and that we still need to heat ourselves and keep our factories going…
So that will not change anything about the rate of inflation, whatever the ECB mamouchis say, who only see temporary inflation when I say it is sustainable.
“If a central bank underestimates the persistence of inflation – as many of us have in the past year and a half – and is slow to adjust its policies accordingly, the costs will be large,” said Ms. Schnabel. For François Villeroy de Galhau, the neutral key interest rate, consistent with balanced long-term growth, “maybe between 1% and 2%”.
While recognizing that “at least for Europe, the growth prospects for the next year have been revised downwards due to energy and gas prices as well as exchange rate developments”, the governor of the Banque de France does not rule out an increase in rates beyond neutral. level. “There is no doubt that at the ECB, we will raise rates if necessary beyond normalization”, assured Mr. Villeroy de Galhau in his speech”.
If the ECB raises the rates for too long then it will quickly trigger a movement of insolvency, especially in the States and in general in all the players of the economy with a lot of debt, not to as the debt is too much.
It’s too late, but all is not lost.
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