The US central bank, the Fed, began raising interest rates in the spring, and the European Central Bank, the ECB, will follow suit. The Federal Reserve has made four interest rate hikes, with the next not expected until August, but expectations for a half-percentage-point hike are high for September, when the Fed will raise interest rates to three percent.
What kind of number is that for this market environment?
“It’s still a neutral interest rate,” he replies Actianus portfolio manager Tommy Korpivaara .
According to Korpivaara, it’s only about 3.5 percent that we start falling on the blackmailer’s side.
“I don’t think it can be ruled out that there will be many more rate hikes if inflation doesn’t start to come down.”
Europe’s biggest problem is the energy crisis
Private investor Mika Heikilja points out that the structural situation in the United States is quite different from that in Europe.
“In the United States, the labor market is really hot,” Heikkila points out, adding that inflation is “really a concern of the central bank.”
In contrast, in Europe, the traditional structural rigidity of the labor market, for example, is severe, and the biggest problem is the energy crisis, which is about to explode after the cessation of Russian gas supplies. Therefore, according to Heikkilä, Europe’s growth prospects are significantly weaker than in the United States.
Therefore, the ECB does not need to raise rates as much as the Fed, he believes. In Europe, inflation comes mainly from rising energy prices.
“The rise in interest rates in Europe is probably much more moderate,” says Heikkila.
The rise in long-term interest rates appears to have stalled, suggesting, according to Heikkila, that the market has come to believe that central bank action will slow inflation so it “doesn’t get out of hand.”
Stock Exchange Foundation Managing Director Sari Lunasmeri reminds that countries in Europe are in debt, which the central bank must take care of. When long-term interest rates reach a lower level than short-term interest rates, it indicates that there are expectations that a recession may occur, he points out.
Lunasmeri believes that the Fed’s interest rate hike could reach 3.5 percent and maybe even a little more, but if the economy starts to slow next year, the central bank will stop raising interest rates and gradually begin to cut them .