We live in a really volatile environment right now, I think few can argue with that.
I know I have not provided any market insights for a while, however spending more time outside, meeting people, and discussing the things that are happening around us has really provided me with some insights, that I think might be worth sharing with the Leofinance community.
So let's address the elephant in the room, lately, the people that are in the spotlight are definitely the head of the FED J. Powell and the head of ECB C. Lagarde. These people, together with their committees have the power to make decisions that will affect every single one of us.
Obviously, I am talking about inflation control and the methods and the manner that they will choose to address it. The numbers don't look good, US has not seen such numbers since the 80s, Europe is arguably in a little better situation judging by the nominal numbers, but there is a catch.
Countries such as the United Kingdom, Czech Republic, and Poland, have already raised their Interest rates, right now they are at 0.5% , 4.5%, and 2.25% respectively.
This is a clear signal that once available increasing interest rates is a tool to control the inflation that is currently getting out of hand in Europe. However not every country has such liberty, as the majority of European countries have a common currency Euro, which in turn robs their Central Banks of the right to adjust national interest rates.
So we are at the mercy of the chairwoman at ECB to figure out how to slow inflation without pushing struggling economies into recession and ultimately default.
Right now tensions are high as in the eastern part of Europe inflation is about to enter double digits, they really suffer from the rising cost of living on the other hand if borrowing costs will be increased the P.I.G.S. aka Portugal, Italy, Greece, and Spain, will have a tremendously hard time to balance their budget and service the government debt at an ever-increasing cost.
This will be a very interesting plot to unravel in the coming months, although we will not have to wait long to notice the Divergence between ECB and FED as the latter is scheduled to increase rates in a month on March 16th.
P.S. special thanks to @eatthebugs for nudging me to post again.
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I think FED has done the impossible, to alleviate the economic impact of the pandemic via asset purchasing programs and q.e. however as you mentioned, it seems like they went just a bit too far, and we are on borrowed time right now, as the hopes to tame the inflation without derailing the broad economy are dissipating by the day...One thing for sure 2022 will be a hell of the ride haha
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