Fed faces toughest decision in decades

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Fed faces toughest decision in decades

The US central bank will announce an interest rate decision on Wednesday and the meeting that precedes it is one of the most difficult ever, says macro economist Edin Mujagic. “It’s a choice between fighting inflation or helping the banks.”

Whatever decision the Fed makes tomorrow will have major drawbacks. “That makes the upcoming interest rate decision so difficult,” says Edin Mujagic, macro economist and BNR economics commentator.

“On the one hand, the central bank should keep raising interest rates, because inflation remains too high,” said the macro economist. On the other hand, there are the banking problems we’ve seen in the US in recent weeks. With that in mind, you might want to take a break from the rate hikes and see how this plays out.”

Whatever decision the Fed makes tomorrow will have major drawbacks. (ANP / Associated Press)

Much indicates that these are not the problems of 2008, Mujagic nuances, ‘but on the other hand you never know what this could lead to. That is why you would prefer to take a step back.’

In short, the US central bank faces a diabolical choice. According to Mujagic, the only way to deal with this properly is by telling it ‘a great story’.

Result of zero interest

‘If you raise interest rates, you have to explain why, so that there is no panic in the markets. And as the Fed you also have to let it be known that there are other ways to deal with the banking problems.’ The economist thinks that “if there’s one banker around who can tell this well, it’s Fed boss Jerome Powell.”

‘If you raise interest rates, you have to justify why, so that the markets don’t panic.’

Edin Mujagic, macro economist and BNR economics commentator

“These situations are the result of keeping interest rates at zero for 10 to 15 years,” concludes Mujagic. ‘This creates many problems that are initially camouflaged by the fact that borrowing money is free. But sooner or later you will be forced to say goodbye to that. And then all these problems suddenly become visible.’


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