The federal reserve has hiked interest rates by 50 basis points which is the biggest hike in 22 years. With this introduction, it is clear the United States is tightening the purse strings but the question is how far will this effect go?
The pandemic has claimed thousands of lives, the world economy is on its edge, and with rising prices and sluggish growth, nobody knows what will happen next.
Another war is the last thing we need but for central banks the biggest priority is inflation. On Wednesday India hiked interest rates to tame inflation and hours later the United States did the same.
Markets want you to hear a moderate hike, investors are appreciating this move but the economists are wary. This is not normal inflation; this is a side effect of pandemic spending.
The government now must focus on two things:
- Cooling down prices.
- Pushing economic recovery.
Both of the above-mentioned goals are contradictory. To grow your economy, you need to spend more but if you spend more inflation will rise. Currently, central banks are taking a common ground to settle this matter.
Sticking to the middle ground will not be easy and if things go wrong which they will we might slip into a recession. The Deutsche Bank is already warning one, they’ve predicted a US recession in 2024.
If the US enters a recession the world suffers.
What’re the chances of America falling off the edge?
Technically, the recession is two-quarters of negative growth and the United States is halfway there. Slow economic activity but no recession this is what officials will speak of every time asked about recession.
But if a recession is coming what should be our plan?
The best you can do is
- Monitor your expenses.
- Think twice before buying assets (EMIs are only going up from here)
- Ask yourself is a good time to quit your job?
It’s never a good time to quit but recessions are the worst and holding on to that job should be a priority but here’s a catch, we’re in the middle of the so-called great resignation. In 2021, 47 million resigned from their job, and finding a new one shouldn’t be hard.
Job openings in the US are at a record high, and Europe’s unemployment is at a record low. This is a strange dynamic of play because people are quitting but more Jobs’re opening and this doesn’t happen before the recession.
Not every central bank is trying to find a middle ground because some don’t even care like Turkey. Their inflation numbers are out and it stands at a whopping 70% very soon we may need a bag of cash to buy some eggs in Turkey.
Turkey too is reeling out from the effects of the pandemic but the bigger problem is their president Erdogan. Erdogan practices economics in reverse because normally interest rates are raised to curb inflation but President Erdogan has asked for the opposite. He wants the central bank in Turkey to slash interest rates or at the very least keep them unchanged.
So far bank has obliged as they’ve no choice, but for 4 consecutive months they’ve kept the interest rates unchanged and during all these times inflation has gone up. No one knows how all of these will pan out because what matters is government actions and only central banks accompanied by our leaders can get us out of this mess.
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