The turmoil and nervousness in the stock markets has been palpable over the past week. On Friday, figures came from the US which showed that inflation has not been higher in over 40 years, with inflation at 8.6 percent. Markets fell sharply both on Friday and Monday. Inflation is spinning out of control in the world’s largest economy. It has happened quickly – and much faster than anyone had imagined. Great concern This creates great concern both for how high interest rates we will receive, and how economic growth will be affected in the future. Because it is an extremely demanding exercise that both the US Federal Reserve and other central banks are now doing. They must stagnate the most rapid inflation in four decades, while at the same time trying to slow down the economy – not kill it. But with the price growth we are seeing now, many people believe that it will be an impossible task. At least in the United States. May get triple increase It seems more and more likely that the US Federal Reserve Governor Jerome Powell will serve a triple interest rate increase tonight, ie an interest rate increase of 0.75 percentage points – writes The Wall Street Journal. In that case, it will be the largest interest rate jump since 1994. Furthermore, the bank will follow up with double interest rate hikes. The US economy will thus go from a long period of strong economic stimuli and virtually free money, to a sharp tightening. The rise in interest rates is expected to be so rapid and so strong that there is a risk of a fall in the US economy, what is called a recession – defined as negative growth in the economy for at least six months. It will have ripple effects all over the world. Will have ripple effects The global economy is extremely intertwined, something we may have really noticed in the body when the corona pandemic started. Lack of computer chips has been a major problem since the pandemic started Photo: PAUL SAKUMA / Labor As an example, one can see what happened when Chinese factory workers were not allowed to show up for work. Then the production of a number of goods stopped, and exports slowed down. We suddenly had an acute shortage of, for example, computer chips, which are needed in the production of everything from cars to refrigerators. The US economy is an important hub in the world economy. As the world’s largest economy, the United States is also a major buyer of goods and services from other countries. When the US economy weakens, it means that you buy less from your trading partners. This leads to lower economic growth there. Can spread quickly Let me explain through an example: A large American e-commerce company has 500,000 employees. The company’s turnover is closely linked to how things are in people’s wallets, and how they see their future. Recent figures from the United States last week show a nascent pessimism among American households. High gasoline prices and generally high inflation tend to do the same with people. Then you also buy less. In addition, the imagined e-commerce company will have increased costs on everything from loans to fuel on its vans. It eats away at the profits. When people buy less of this company, the company also buys fewer goods from its supplier in China, and with declining order volumes, it has to lay off employees both in the US and at the call center in the Philippines. Fewer containers are also sent across the sea from Asia, and those who work with loading and unloading goods have less to do. What starts with American consumers holding their wallets a little harder can thus spread negative economic impulses all over the world. The European Central Bank and Governor Christine Lagarde will also start raising interest rates. Photo: Markus Schreiber / AP Will notice it here at home too Even though the USA is not Norway’s most important trading partner, both the EU countries and the United Kingdom are larger, we will notice it here at home as well. Not least because the EU countries are also facing similar problems as the USA has, with high pressure in the economy and rising prices. Interest rate hikes in the eurozone are expected to come just over the summer. In just over a week, Norges Bank will also have an interest rate meeting. The vast majority of economists expect that central bank governor Ida Wolden Bache will both raise interest rates, and signal that interest rates will rise faster than she indicated at the previous main interest rate meeting in March. Governor Ida Wolden Bache Photo: Stian Lysberg Solum / Stian Lysberg Solum A lot that comes into play Although the key interest rate here in Norway is not determined by the US interest rate, we are still affected as the US Federal Reserve is a large and leading player. In addition, the Norwegian krone is also affected by the interest rate differential between the United States and Norway, even though the currency channel has become less strong. There is much to suggest higher interest rates in the future: Higher interest rates abroad High oil prices Very low unemployment High wage and price growth Weak krone Recent figures from Norges Bank’s regional network, the report used as a temperature gauge on the Norwegian economy, also speak for themselves: Nine of ten norwegian companies report higher costs than normal, half of them believe that inflation will only continue. Great uncertainty On the other hand, there is great uncertainty, especially in connection with the aforementioned development in the world economy. In that case, it provides an argument that the interest rate hike will not be doubled at the next meeting, as many believe it may be. A double interest rate hike will then be a very unusual move by Norges Bank, which has a habit of going up slowly but surely. Towards the end of next year, we can see a key interest rate of around three percent. This means a mortgage rate of over four percent. Just take out the calculator right now and work out what it means for your monthly budget. And if you do not know how to calculate interest, this is a good opportunity to find out. It will not be less important to have good control of their costs in the future.
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Tonight he can send shock waves into the world economy – Expression
