Inflation looks to be moderating but the rate increases keep coming. The Federal Reserve increased U.S. rates by 0.25% to a range of 4.5% – 4.75% while the European Central Banks and Bank of England raised by 0.5% to 2.5% and 4.0%, respectively. All still have base borrowing costs meaningfully below their present rates of inflation and all are hoping their belated interest in controlling it will not cause recession. Unfortunately, they’ve all made such a pig’s ear of it that the chances of avoiding recession are beyond remote. It’s really just a question of how deep it will be.
It is a classic example of the old proverb that ‘a stitch in time saves nine’. Or at least it would have done. Central banks, with far too much belief in their abilities, assumed they could keep economies running hot almost indefinitely. Unfortunately, by trying to create a false economic world where nothing could ever go wrong, they allowed multiple imbalances to accrue. Murphy’s Law decreed that remedial action would be required at the worst possible time and that’s why we are witnessing rate tightening into a recession.
We’ve said it before but it bears repetition. If you’re hoping for a swift economic recovery or believe the entities above are capable of delivering it, we suspect you’ll be disappointed.
