Monetary policy: historic turning point

Dhe American central bank has now officially heralded the turnaround in interest rates in the USA: the Fed increased the key interest rate for the first time since December 2018. After a premium of 25 basis points, the level remains low with a range of 0.25 to 0.50 percentage point. However, further rate hikes will follow.

The monetary watchdogs are promising six additional increases of 25 basis points each this year, but have kept the door open for larger steps. “If we decide it’s appropriate to raise rates faster, we will,” said Fed Chair Jerome Powell. The American economy is “very strong” and can cope with a tighter monetary policy.

After brief hesitation, the stock markets reacted positively to the monetary authorities’ announcements: the major US indices rose significantly on Wednesday. “Markets appear to be able to handle appropriately tight monetary policy and are confident in a Fed that will act with prudence without unduly jeopardizing growth,” commented Ulrich Stephan, chief investment strategist for retail and corporate clients at Deutsche Bank.

Carsten Klude, chief economist at Bankhaus MM Warburg, sees “there is a high probability that the Fed’s inflation forecast is too optimistic and that further or larger interest rate hikes can therefore be expected. In addition, yesterday’s decision led to a further flattening of the yield curve The gap between two- and ten-year-olds has shrunk to 20 basis points, so there’s not much missing for a recession signal.”

The central bankers are also facing a difficult task in Europe: On the one hand, they have to limit inflation, which has been further fueled by the war in Ukraine. Excessive interest rate hikes could stall the economy. “The US economy is overheating, the rise in labor costs has accelerated massively, inflation is likely to top eight percent soon. In this environment, decisive action is required to ensure that inflation does not become permanently too high. The US The central bank is by no means exaggerating,” says Jörg Krämer, chief economist at Commerzbank.

Rising interest rates are considered a negative factor for the stock markets because debt is becoming more expensive and defensive investment alternatives are becoming more attractive. Concerns about the economic impact of rising interest rates put the share prices of fast-growing but unprofitable technology companies under pressure at the turn of the year. In the middle of the week, however, share prices were also driven up by hopes of a ceasefire in Ukraine. For the first time since the outbreak of war, the DAX rose well above the 14,000 point mark. The Financial Times previously reported significant progress in talks between Ukraine and Russia.

Winner in the DAX

The war has put the DAX under particular pressure: The index lacks classic crisis winners such as oil and commodity companies. The many industrial groups, on the other hand, are suffering from the high costs of energy and raw materials. In the first phase of the war, Deutsche Bank and Porsche lost the most, with losses of almost 30 percent. Since the DAX’s low on March 8, the two stocks have gained around 20 percent.

When it comes to interest rates, the focus is now on the European Central Bank. The inflation risks are high – especially since the money supply has risen far too much since the Corona outbreak, driven by the ECB’s bond purchases, argues economist Krämer. “It’s high time that the ECB took its lead from the US Federal Reserve and finally took its foot off the gas in terms of monetary policy.”

Porsche: The course of the main shareholder of the car group Volkswagen suffered particularly badly in the crash, but then recovered strongly.

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