4/8/22 9:04 AM - Lesezeit

The central banks are putting on the brakes! Really?

Andreas Auer

Chief Economist

That's what you read as a headline as soon as the "major" central banks around the world start raising their key interest rates. Or also: "Central banks are becoming restrictive". Why do I think this is a very bold statement? 

Zero is not normal

First the sober facts. Until recently, the key interest rate of the U.S. Federal Reserve was in a range of 0 to 0.25 percent. One interest rate hike has already taken place this year, so we are currently in the range of 0.25 to 0.5 percent. The policy rate has moved only slightly away from the zero mark in the process. And I know we investors are used to it by now, but a key interest rate at or near zero does not represent the normal state of the economy. Rather, this level can be called a crisis level. But if there is no (economic) crisis, why should the key interest rate be at zero?

But it gets even more confusing: Although the key interest rate is being raised, the central bank's monetary policy stance is actually becoming more expansionary - in other words, even looser. How can this be happening? Inflation is not only high, it is also rising. So the real interest rate, which is the key rate minus the inflation rate, is falling. With inflation at just under eight percent in the U.S., the real interest rate is just minus 7.5 percent! Not even in the 1970s, when inflation rates were even higher, was the real interest rate so low. 

Sailing mode instead of foot on the gas in the United States

I do not share the general assessment of numerous market observers and also the specialist media that the central banks will actually become more restrictive. Perhaps this will be the case in 2023, perhaps not until 2024. In any case, there is no danger of this happening in the coming months. Let's describe the current phase differently, more accurately: The U.S. Federal Reserve is taking its foot off the gas. And it seems that we will remain in sailing mode for a few more months. 

So don't be unsettled, monetary policy will continue to support the real economy and the financial markets. Central bankers are also not (yet) interested in spoiling the mood. 

Uncertainty keeps the ECB from raising interest rates soon

Of course, the European Central Bank (ECB) also wants good economic sentiment. Due to the situation in Ukraine, the situation here is a little different, but one thing is also true for the euro zone: inflation rates are clearly excessive. Initial estimates put the average price increase in March at 9.8 percent in Spain and 7.6 percent in Germany. These are values that we consumers have not seen - if at all - for decades. 

The Gutmann Chief Investment Office does not expect the ECB to raise interest rates soon, as the economic uncertainties resulting from the war in our neighboring country are too great. 

Future with interest

It's too early to worry about interest rates being (too) high. Instead, you can already be happy about the fact that there will be interest again in the future. Both bonds and the dear savings book will again yield an (interest) return. 

The economic phase ahead of us thus carries exciting developments, but also a lot of

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