The head of the Federal Reserve Bank, “the US Central Bank” Jerome Powell, came out recently to announce the bank’s full readiness to face the expected inflation in the coming months, the same content that Treasury Secretary Janet Yalin carried to the markets, noting the readiness of the largest economy in the world to accept high levels of inflation. inflation.
However, these messages seemed unconvincing to global banks that fear long-term crises due to the repercussions of “terrifying inflation” resulting from crazy increases in the prices of primary commodities and final products in recent months, on the movement of global markets.
And Deutsche Bank of Germany issued in a research note, published on Monday evening, a stern warning about the way the US authorities deal with this inflation, noting that high inflation is expected to continue for a period and lead to a major crisis in the following years.
The bank criticized the recent trends of the “US Central Bank” to accept levels of inflation that exceed its previous target, estimated at 2%, even if this would allow the economy to fully recover, including all segments of society, pointing out that the Fed’s decision not to raise interest rates until after If the inflation rate continues to rise for “extended periods”, it will have serious consequences.
David Volkerts-Landau, chief economist at Deutsche Bank, Germany, said that “the consequences of the delay in dealing with the problem of high inflation on economic and financial activity will be greater confusion than can occur in the event of its immediate intervention,” stressing that this “may create a marked recession, and trigger A series of financial crises around the world, particularly in emerging markets.
US monetary policy makers believe that the high levels of inflation, which have become more than 2%, will disappear when supply chains around the world are restored to their regularity and exceed the current period that is witnessing a significant rise in prices compared to the similar months of last year, which witnessed the repercussions of the new Corona virus pandemic.
On her way back from London, after attending the G7 finance ministers’ meetings last Saturday, the US Treasury Secretary told Bloomberg that a rise in the inflation rate for some time, and the consequent rise in interest rates, would be in the interest of the US economy.
But the German bank analysts disagree with the American minister, who previously worked as head of the Federal Bank and is the most important member of the economic team in the administration of current President Joe Biden, as they see the huge packages to revive the economy and relief citizens, with the Fed’s actions to buy billions of dollars worth of bonds from The secondary market every month, as well as other stimulus measures, will cause the inflation rate to rise in a way that the Federal Reserve will be unable to deal with, noting that if this does not happen next year, it will happen the following year.
The German bank stressed that the orientations of the American authorities concerned with the social dimension, and ignoring high levels of inflation, put the world’s economies on a “time bomb”, which “may have devastating results, especially for the most vulnerable groups in society.”
On the other hand, the pessimistic report of the German bank did not win the support of many on “Wall Street”, as Jan Hatzius, chief economist at the giant American investment bank Goldman Sachs, confirmed in an interview with CNBC News that “there are many reasons in support of the situation.” The current Federal Reserve, for example, the generous unemployment benefits programs are nearing completion, which will push many to return to work, and relieve pressure on companies, which have had to raise wages in order to find their labor needs.
Since the emergence of the epidemic and its spread in the American lands during the first quarter of last year until this moment, the US Congress in its two houses has approved more than five trillion dollars in economic stimulus packages and relief for citizens, and the Federal Bank was forced to double its budget after buying huge amounts of treasury bonds and real estate bonds from the market. secondary, which caused an increase in the cash holdings of companies and citizens.
These policies have resulted in higher prices for almost everything in the US, from stocks, cryptocurrencies, and gold, to used cars, wine bottles, and shoes.
Al-Araby Al-Jadeed published a report on the second of this June entitled (The world is facing a sudden depletion of goods… China and America are driving the markets crazy), in which it conveyed warnings from international banks and giant financial and commercial institutions that international markets are negatively affected by what is happening in the largest Two economies in the world of large storage of primary commodities and high production costs.
The increase in cost began to be reflected on individuals and companies in the United States, which appeared in some indications of this. The US core CPI, which excludes food and fuel, jumped in April month-on-month at the most since 1982.
While the Fed asserts that the current price hikes will be temporary, and that they are necessary to restore economic recovery, the team of economists at Deutsche Bank believes that the expected inflation, resulting from a combination of unprecedented fiscal and monetary policies, may reach levels similar to those witnessed in the 1970s The last century, when its average during a whole decade was 7%, and exceeded 10% in many periods.
But the Fed’s policies at the time adopted high interest rates, sometimes as high as 20%. Paul Volcker, the bank’s president at the time and one of the most important incumbents, succeeded in bringing the inflation rate down to acceptable levels, but the side effect of high interest rates was the Great Recession that hit the country for years, which the German bank warns of happening again.