Moody’s rating agency worries

Moody’s rating agency worries
Moody’s rating agency worries

Could history be repeating itself? The fight against inflation could have serious side effects.

Niklaus Vontobel / ch media

Jerome Powell, the head of the American central bank (Fed), has an interest in lowering key rates as soon as possible, warns Mark Zandi, chief economist of the rating agency Moody’s Analytics on the social network “X”. Otherwise, entire sections of the American economy would risk collapsing, he warns.

And when something collapses in the United States, this is often the case in Switzerland as well. History has proven this time and time again. The latest bankruptcies of American banks led to the flight of wealthy clients from Credit Suisse, causing its tragic end. More than a decade earlier, the Confederation had had to save UBS, caught in the whirlwind of the American real estate crisis.

The risk of recession is increasing and further fractures could appear in the financial system if the US central bank (Fed) keeps interest rates at their current level, Mark Zandi explained to “Businessinsider” magazine:

“These interest rates are bad for the economy: they demoralize it and something could end up breaking at some point.”

Mark Zandi

Mark Zandi, chief economist at Moody’s Analytics.Image: Al Drago/Bloomberg

“If I were king, I would lower interest rates now, because I think the economy needs this relief,” the economist said. The strength of the economy certainly indicates that the United States is not on the verge of recession. But higher interest rates have started to take their toll, as evidenced by a slowdown in lending by banks.

A vulnerable office real estate market

Mark Zandi mentioned the fact that several banks collapsed last year:

“These are the kinds of things that worry me in the context of high interest rates.”

According to “Businessinsider”, billionaire and investor Barry Sternlicht similarly predicted that bank failures could occur every week in the United States. High interest rates continue to weigh heavily on the mortgage market commercial, i.e. offices and stores.

The stakes are high. The markets therefore have their eyes glued to the new inflation figures which were published this Wednesday. Expert John Authers, for example, writes for the financial news agency Bloomberg: “This round of inflation data will be of great importance.”

The hope of an upcoming reduction in key rates is reborn with this announced drop in inflation. This perspective alone has allowed US stock markets to reach all-time highs.

Former Fed economist Claudia Sahm talks about the biggest story of the month for financial markets. According to her, good inflation figures would certainly not be a turning point – it is only a single month – but a relief. Indeed, bad figures would add to a series of disappointments.

Victory over inflation is in jeopardy

Previously, inflation data had been higher than expected in three months, and fear had already spread.

In the United States, financial markets no longer believed that the Fed was going to lower its key rates this year. Long-term interest rates therefore started to rise again and stock markets weakened. In Europe, representatives of the European Central Bank have publicly questioned whether it is possible to lower their key rates if the Fed does not do so. High key rates in the United States, significantly lower interest rates in the euro zone: this constellation could significantly weaken the euro, thus making European imports more expensive and boosting inflation.

High European key rates could also make it more difficult for the Swiss National Bank (SNB) to defeat inflation once and for all.

Certainly, the increase in the consumer price index was again significantly below 2% in April. The way would therefore be clear for two further cuts in the key rate this year, and the markets therefore expect a SNB key rate of 1% at the end of the year.

This would please, for example, all homeowners who have taken on Saron mortgages, which are directly determined by the SNB’s key rates. The benchmark mortgage rate, on which rents depend, would also fall more quickly.

But the Swiss franc would continue to depreciate against the euro if the SNB continued to lower its key rates on its own. A weakening of the franc could also make Switzerland’s imports more expensive – and the victory over inflation, which was thought to be achieved, could once again be lost.

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