The world may soon put an end to the recent years' inflation crisis. Fed Chief Jerome Powell's message on Friday marks the end of a period of high interest rates and loan costs. This is according to Robert Bergqvist, senior analyst at SEB.
The message is long-awaited – also for us Swedes and all mortgage borrowers.
It's an enormous relief.
When the world was thrown into an inflation shock a couple of years ago due to the pandemic and energy crisis, no one knew how difficult it would be to combat and how long it would take, emphasizes Bergqvist.
The message from Fed means a kind of closure for the inflation crisis we've been in. It means a lot for the future and gives everyone more predictability. It will be easier for people to plan when they don't have to be shocked by suddenly high prices in the grocery store, and for companies to plan their purchases, he says.
Affects the entire world
Earlier in the week, the Swedish Riksbank also announced a lowered interest rate, as well as further reductions to be expected before the turn of the year.
Although the pace of interest rate cuts by both Fed and other central banks is still an unwritten card, the significance of Fed now clearly staking out the direction cannot be overstated, according to Bergqvist.
The USA is the locomotive for the entire world economy, and Fed exerts a gravitational force on all other central banks in the world. Now, maybe I'm getting ahead of myself, but the world will feel much better when the USA starts lowering interest rates.
A expected consequence is that the dollar will lose value and thus the Swedish krona will strengthen. It can also hold back food prices.
But the biggest effect will be felt by mortgage borrowers when interest costs go down, says Robert Bergqvist.
EU area on the right track
Even Finnish Olli Rehn, member of the European Central Bank ECB, describes the inflation development in the EU area as "on the right track" in connection with Fed's message, reports Bloomberg. However, he warns of dampened growth, among other things, in the manufacturing industry.
Fed has been criticized by analysts for perhaps having waited too long to lower the historically high interest rate. If the critics are right, remains to be seen, according to Bergqvist.
It's just a matter of keeping our fingers crossed that Fed succeeds with its monetary policy, it also affects the Swedish labor market.
