Inflation is the word for 2022.
Prices for goods and services have risen for the first time in 40 years, significantly impacting the purchasing power of households.
To reassure consumers, the Federal Reserve (Fed) has embarked on an aggressive monetary policy marked by sharp increases in interest rates. Economists warn that this monetary policy, seen in other parts of the world, especially in Europe, home to the European Central Bank (ECB), risks triggering a so-called “hard landing” for the US economy. Basically, if the Fed continues to be very aggressive in tightening monetary policy, it risks triggering a recession.
While many companies are passing on higher costs to consumers by raising the prices of their products, many others are starting to lay off workers.alphabet (Google) It is the parent company of Internet giant Google.
At the 2022 Annual Code Conference in Los Angeles on Sept. 6, CEO Sundar Pichai said: “Macroeconomic performance correlates with advertising spending, consumer spending, and more.”
Federal Reserve May Cause Deflation
But despite the warnings, the Fed has decided to continue its fight against inflation. In his final public remarks before the Sept. 21 policy meeting, Fed Chairman Jerome Powell effectively cemented his call for a third consecutive 75-basis-point rate hike.
“We need to act frankly and forcefully, as we have done, and continue to do so until the job is done,” Powell said on September 8.
CME Group’s FedWatch has priced in an 86% chance of a 75 basis point rate hike, with investors expecting a so-called “terminal” Fed Funds rate above 4% before Chairman Powell hints at a moratorium. I’m looking for. monetary tightening.
Elon Musk, the world’s richest man, believes that institutions will trigger deflation if the Fed goes ahead with jumbo rate hikes, as the market currently expects. In short, most goods and services are ridiculously cheap.
“A significant rate hike by the Fed risks deflation,” EV maker Tesla CEO said (TSLA) on Twitter on September 9th
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Details were not disclosed.
Musk’s tweet sparked a number of reactions, including Europac’s chief economist and global strategist, Peter Schiff. The latter disagrees with serial entrepreneurs, and rather believes the opposite. Schiff said a big rate hike by the Fed could lead to “hyperinflation” and a “deep recession.” He added, “It could trigger a financial crisis worse than 2008.”
“There is a risk of hyperinflation. Rising debt service costs, a deep recession, an exploding federal budget deficit, and a collapse in asset prices will lead to a financial crisis worse than 2008. We will respond with reasonable QE. [quantitative easing]It’s crashing the dollar and driving up consumer prices,” Schiff said.
Musk and deflation
Deflation is defined as the opposite of inflation. It is characterized by a continuous decline in the general level of prices. Economists say it could encourage households to postpone purchasing decisions while waiting for further price declines, which could, among other things, worsen the financial situation of borrowers.
The results can be devastating to the economy, as regular price declines encourage households to postpone purchasing decisions while waiting for further price declines. This behavior could lead to lower overall consumption and higher inventories for companies unable to sell their products. In response, they reduce production and investment.
Deflation can be caused by increased productivity or decreased demand.
Deflation is rare in rich countries. There are only two such examples in the last 100 years. The deflation of the 1930s hit Europe, followed by the United States, and the Japanese economy at the end of the 1990s.
This isn’t the first time Musk has predicted a low-price era. Last April, the billionaire predicted that we would soon be entering a “world of abundance” during which most things would be free. But this deflation is not due to financial decisions, but to major advances in artificial intelligence (AI) and robotics that are increasingly used in our daily lives.
“This is going to be a really prosperous world. Any goods or services can be obtained by anyone who wants them. It would be ridiculous to get goods and services so cheaply.” The billionaire said in an interview with Chris Anderson, head of Ted Talks on April 17th.
“It will be a world of abundance. The only scarcity that will exist in the future is what we as humans decide to create.”