November 27, 2022

Taylor Daily Press

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Inflation has eased in the United States, but interest rates are rising

Inflation has eased in the United States, but interest rates are rising

As in Europe, US inflation eased slightly in April. It was 8.3 per cent in April, up from 8.5 per cent in March. Like the Netherlands, consumer confidence in the United States is now falling sharply. It is noteworthy that the labor market is very tight. There are enough jobs and wages are rising strongly, ‘says PNR housing economist Hon de Zhang.

‘I think – except for all sorts of shocks that could still occur – we’re a little closer to the peak, or maybe it’s over,’ says De Jong. But uncertainty remains high over energy prices, the war in Ukraine and the sanctions associated with it. Chinese locks should not be forgotten either. Last night, the Chinese released data on their April industrial output, which fell sharply. Many products manufactured by the Chinese come to us and the United States. That is, declining production in China will translate into new supply problems for us in the future. We have learned in recent years that it will raise inflation. ‘

Consumer confidence

In the United States, consumer confidence is generally seen only during a recession, but U.S. spending remains solid. According to De Jong, it is significant. ‘The interesting thing about those figures is that it is very negative, especially when assessing one’s own financial status. This is significant because the labor market is very tight. There are plenty of jobs and wages are rising sharply. Like us, the desire to buy is always limited. This is mainly triggered by increased inflation by respondents. But they will continue to spend until now. ‘

Read also | The United States may reduce taxes on China to combat inflation

Interest rate hike

The Federal Reserve has indicated that further rate hikes will continue to ensure that inflation is kept under control. But higher tariff hikes could lead to stagnation and ‘chances are very high’ says De Jong. “In the past, we have often seen the Federal Reserve – as they begin to raise interest rates – actually go a long way and push the economy into recession.”

Read also | US inflation is rising

The official interest rate in the United States is now 1 percent. And if you look at how high it should be to bring inflation under control, you can see the past. In the 1970s and 1980s, official interest rates had to be raised above inflation to curb inflation. If you follow that logic, the Federal Reserve will now push interest rates to eight percent. For a variety of reasons this seems to me to be quite unlikely. But it seems very likely to me that the official interest rate – which is now 1 per cent – will go up to three per cent or more in the future, ‘says De Jong.

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