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CAPinsideUSA1 MIN READING TIME2018-06-13

Inflation is rising in America - is the rate hike following?

In the US, consumer prices are rising at the highest rate since 2012. The US Federal Reserve now pulls the ripcord. Does that affect Europe?

In May, consumer prices rose by an average of 2.8 percent. This puts the US Fed FED in a forced position, because the target to limit the price increase to 2 percent, thus once again not reached. The central bankers do not have much room for maneuver. Another option is a renewed increase in key interest rates, although the last interest cut to 1.5 to 1.7 percent is less than two months ago. Experts are sure that the FED is expected to adjust interest rates before the middle of the month. Jerome Powell, the central bank chief not long in office, thus continues the line of his predecessor, which pushed away from the low interest rate policy in small steps.


Many flies - one stone

With a fast interest rate adjustment, the Fed can also kill several birds with one stone. Because thanks to the tax reform of US President Donald Trump threatens an overheating of the economy. If the key interest rates rise, this will be counteracted just as effectively as the rising price level. With US unemployment currently at historically low levels, the Fed can ignore the risk of negative labor market effects for now. Therefore, it is also an open secret in professional circles that the US Federal Reserve will enforce up to two further interest rate hikes during the autumn. This also shows that the US economy has finally abandoned its crisis mode and is programmed for growth.


Direct impact on Europe?

In Europe, however, the situation looks very different. It is true that most countries have left the international financial and economic crisis behind. But that does not apply to all states. To see that, just look at Italy or Greece. For this reason, unlike in the past, the European Central Bank is unlikely to follow the example of the US and raise key interest rates in the euro area, but will continue the period of low interest rates for a while. As long as this remains, euro area borrowers can continue to enjoy low interest rates as investors continue to wait for good returns.