“Doctor Doom” Robinny warned on the 18th that EuropeCentral bank(ECB) and the Bank of England (BoE) should continueraise interest rates, to avoid the risk of “stagflation”. The US Federal Reserve (Fed) may also need to raise interest rates again.
In an interview with Bloomberg TV, Roubini noted that the recent rise in oil prices will keep overall inflation rates high and that any talk of easing monetary policy is extremely premature. The dilemma facing the ECB and BoE is more serious than that of the Fed, as prices in the Eurozone and the UK continue to rise and economic growth slows.
He said the BOE “should.”Rate of interest“Towards 5.75%”; The current interest rate in the UK is 5.25%, and it is expected that interest rates will increase by another 1 point this week.
He stressed that the BOE’s recent “dovish” signals are a “problem”; “These signals make us feel that the BOE is not sure whether it will raise interest rates further. If that happens (no further interest rate increases), it could destabilize inflation expectations and move toward real stable inflation.” Takes away.”
BOE policymakers have recently talked about keeping interest rates at a higher level for a longer period of time rather than raising them further to reduce inflation. The UK overall consumer price index (CPI) is currently rising by 6.8% year-on-year, well above the 2% target.
Roubini said euro zone inflation was also “above target”. He explained, “Both the ECB and the BOE are in a dilemma. On the one hand, a contraction in economic activity would probably prevent them (the central bank) from doing so; but on the other hand, if inflation remains well above the target, they would have to raise interest rates even higher.” He warned that failure to raise rates “could destabilize inflation and lead to de facto stagflation.”
He also pointed out that the situation in the United States is strong and that the “good news” on the economy does not indicate a “hard landing”; However, he said the market wrongly expected the Fed to cut interest rates next year; But conversely, the Fed may need to raise interest rates further. And the timing of the first interest rate cut “could be closer to the middle of next year.”
“They can’t declare mission accomplished yet. Overall inflation is rising, oil prices are high, so interest rates are likely to rise again,” he said.
Although he believes it is important to keep interest rates high, “there is a risk of financial instability. Such as what happened in Britain a year ago, and there is stress on the financial system this spring. Because interest rates are high, are going to be there and will be there for a long time, I don’t think we’ve gone out of the way. Some degree of financial instability is still possible.”
He said structural changes in the global economy, from population aging to the geographic location of supply chains, will keep inflation high; Therefore, major central banks should raise their inflation targets from 2% to 3% or 4%.
He said, “From the supply side and the demand side, there are many factors that make 2% an impossible task. Over time, the new normal (inflation rate) of advanced economies should be between 3% and 4%, but Certainly not a sudden change.”
finance(tagstotranslate)interest rate rise