Over the past year, central banks around the world have continued to do their best to contain inflation without causing major problems for the economy. This appears to have been somewhat successful as inflation is actually slowly starting to fall. According to some analysts, now is the time for central banks to cut significantly higher interest rates, but JP Morgen believes this hope is far too optimistic.
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Will interest rates remain high due to ongoing inflation?
At the beginning of January, the American investment bank wrote in a research report entitled “Macro Strategies Outlook” that the hope of interest rate cuts by the Federal Reserve was far too great. According to data from the Fed Fund Futures Market, investors expect the central bank to cut interest rates by 1.4% this year (140). basic points in technical jargon) will decrease.
The Fed’s own forecasting tool, called the dot plot, showed last December that the central bank board expects interest rates to fall no faster than 0.75%.
JP Morgan’s macro strategy team believes that the market’s approach is too optimistic, as there are signs that the likelihood of disinflation is not that great. This suggests that inflation will remain relatively stubborn this year and in any case will not fall below zero, as much of the market seems to expect. The investment bank also expects the US economy to remain quite strong, which will also help inflation remain high.
In theory, this is not very favorable for the prices of many financial assets. If interest rates remain high for longer, it becomes less easy to borrow money. A large portion of assets in the financial world are financed by debt. It is also more expensive for companies to take out loans with higher interest rates. If Bitcoin (BTC) and cryptocurrencies continue to remain associated with risky assets, they could well lose value along with traditional assets.
In some countries inflation is much higher
Annual inflation in the United States was 3.4% in January, according to TradingEconomics. In Europe this value is significantly lower, more precisely 2.9%. However, there are also countries where inflation is not as low as in Europe. For example, inflation in Turkey was around 62% at the end of last year, and in Argentina it was even over 200%.
We will know tonight whether the Federal Reserve will keep interest rates the same, raise them or lower them. It is currently assumed that interest rates will remain the same.
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