| Amir Kahanovitz, Chief Economist of Phoenix-Excellence
Energy goods continue to explode. The price of a barrel reached $ 116 on Thursday morning. According to some estimates, it will easily reach $ 150, both without supply disruptions and without an increase in global demand, because Russia is excluded from the world economy, buyers avoid buying oil from it, – which disrupts global trade in commodities, FTSE and MSCI Russia from their indices and the rating company Fitch cut its rating to “junk”.
Bodies that were in short positions on oil close them – which accelerates the rise (short squeeze). Chaos threatens the economy.
| The Federal Reserve is torn between inflation and growth risks
Energy prices are soaring while the demand for energy is not rising at all. That is, it is not the strong economy that explains the price jump – which raises the risk that energy shortages will curb the economy. A level of $ 150 a barrel was seen once, on the eve of the collapse of Lehman Brothers.
The slope of the yield curve continues to flatten and has fallen in a 2-10 year segment to 37 lbs, the level to which it fell in June 2018, four months before the stock market cracked.
Published yesterday, which describes the Fed’s reports on the economic situation in their area according to information gathered before February 18, before the Ukraine war broke out, has already described that since mid-January US economic activity has expanded at a “modest to moderate pace”.
The stock market holds up: the market is mainly supported by the jump in inflation expectations, when stocks are a real asset, and by the energy companies, which are enjoying the commodity price frenzy. In addition, the expected damage from increases softens as the market moves to price 5 increases this year compared to 7 pre-war interest rate increases.
While the Federal Reserve is determined to start raising interest rates, it is not determined about the intensity. In testimony before lawmakers yesterday, Fed Chairman Jerome Powell said that this time it looks like the economy will be able to cope with higher credit costs. A loot of double interest rate hike (of 50 basis points) on March 16th.
It seems clear to everyone that raising interest rates will not really bring Russia back to world markets, nor will it really succeed in cooling inflation. But the Fed is still expected to move toward them to remain relevant. It is likely, in our estimation, that after some initial interest rate hikes, the Fed will feel more comfortable talking about the difficulties and risks.
| Instead of raising interest rates, the Bank of Israel can start selling dollars
Israel is warming, and in light of the jump in commodity prices, it will probably remain high. In addition, the Bank of Israel is also seeing very strong growth and a labor market is boiling and starting to get stressed. The market is pricing four interest rate hikes this year up to a level of 1%.
But most of the abnormal inflation in Israel is imported (energy, cars, furniture and household equipment) and is expected to continue to be imported. In order to deal with these conditions, the Bank of Israel needs to strengthen the shekel, as it will also cool down imported prices and the technology industry, which is responsible for a large part of the abnormal growth and insanity in the labor market.
Raising can certainly strengthen the shekel and cool both, but may also cause damage to the local economy. Doesn’t it make more sense for the Bank of Israel to try to strengthen the shekel first by selling its huge foreign exchange reserves? In the supply of cars?
The writer is the Chief Economist of Phoenix-Excellence. This review is provided as a service to readers only, and should not be construed as an offer, recommendation, substitute for the reader’s professional judgment or investment advice or investment marketing, purchase and / or sale and / or holding of the securities and / or financial assets mentioned or of securities and / Or any other financial assets