Energy goods continue to explode, Brent’s barrel reached $ 116 this morning. According to some estimates, it will easily reach $ 150, both without supply disruptions and without an increase in global demand, because That Russia is excluded from the world economyBuyers are refraining from buying oil from it, Russian banks are cut off from the SWIFT system, disrupting global trade in commodities, FTSE and MSCI have removed Russia from their indices and Fitch has 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 Fed is torn between inflation and growth risks – Energy prices skyrocket at such a time that the demand for energy does not increase 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 $ 150 barrel of oil barrel was seen once, on the eve of the collapse of Lehman Brothers. The yield curve continues to flatten and has fallen in a 2-10 year segment to 37 basis points, the level to which it fell in June 2018, 4 months before the stock market cracked. The Beige book published yesterday, which describes the Fed branches’ reports on the economic situation in their area according to information gathered before February 18, pre-war Ukraine, 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 energy companies that benefit from the madness of commodity prices. In addition, the expected damage from interest rate hikes softens, as the market has moved to price 5 hikes this year compared to 7 before the war:
The Federal Reserve is determined to start raising interest rates, but it is not determined about the intensity In a testimony before lawmakers yesterday, Fed Chairman Powell said it appears the economy will be able to cope with higher credit costs this time around. A loot of double interest rate hike (of 50 basis points) on March 16th.
seen That it is clear to everyone that raising interest rates will not really return Russia 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 – Inflation in Israel is warming and in light of the jump in commodity prices will probably remain high. In addition, the Bank of Israel also sees very strong growth and a labor market that is boiling and starting to get stressed. The market is pricing four interest rate hikes this year up to a percentage level. 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 interest rates 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? The cars?
Comments on the article(0):
Your response has been received and will be published subject to system policies.
Thanks.
For a new response
Your response was not sent due to a communication problem, please try again.
Return to comment