US inflation could be a problem

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There has been a lot of attention lately to inflation, which is already starting to accelerate in the US and therefore around the world. Is it good or bad for the economy? What can the enormous injection of money into the economy lead to anyway?


Dollar Index

Dollar Index

The latest statements from the US Federal Reserve said that money will continue to be printed and that interest rates will remain at low levels for a long time to come. Already now it is noticeable that all these actions are accelerating inflation in the United States. It is possible that inflation in the USA could rise to 4% in the coming months, which even the Fed admits.
For the USA and other developed countries this is not a problem in principle. A sustained increase in inflation together with low interest rates creates a good climate for growth of the stock market and recovery of the labour market. The only thing to watch is the rhetoric of central banks. As soon as we see the first signs of stimulus winding down, markets will start to take profits, which could end badly for those who bought at the highs.
As far as developing countries are concerned, the situation is a little different. According to the laws of economics, if inflation starts rising in a developed country, it will rise even faster in a developing country. This is already evident in countries like Brazil, Nigeria and Russia. Those countries need to get ahead of the curve and cut stimulus earlier and raise interest rates. Emerging market economies are more exposed to risk as central banks find it harder to operate with financial instruments.
There is another interesting piece of information. Reuters has obtained the correspondence between the Republican Senator Scott and the Fed chief Jerome Powell. It reveals that Powell and the Fed will work closely to achieve maximum employment and stable prices in the country. In other words, it is a confirmation that the Fed will continue to buy $120 billion worth of Treasury bonds every month. And the Senator wrote that he was very unhappy with Fed policies that would hurt many families and trigger serious price increases.
What it means for us is that the Fed is not going to change anything in the near future, although important public figures are already appearing who are unhappy with its policies. Therefore, the markets are likely to continue rising, as well as precious metals, especially gold, which already shows good dynamics.

13.45 ECB interest rate decision
14.30 US initial jobless claims
14.30 ECB press conference


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