“For the first time since the 1970s, major central banks are unlikely to come to the rescue”

QWhen “Black Monday” shook the markets in 1987, the US central bank (Fed) intervened to calm the markets. This action opened an immense interventionist cycle of thirty-five years of falling interest rates, ever lower, until the unthinkable: negative rates (the rate of the European Central Bank [BCE] today is −0.5%). Till today ?

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Pimco, the world’s largest fixed income manager, seems to think that the era of monetary intervention is coming to an end. “For the first time since the stagflation of the 1970s and early 1980s, major Western central banks, led by the Fed, are unlikely to come to the rescue of a negative growth shock, because it is accompanied from a positive inflation shock. »

This sentence is taken from Pimco’s Cyclical Outlook report released Wednesday, March 23, which was co-authored by Andrew Balls, the US company’s Chief Investment Officer. His opinion counts: the man is at the head of 2,200 billion dollars (around 2,000 billion euros) in assets, almost entirely held on the debt market (government bonds, corporate bonds, etc.), making it the largest player in this sector in the world.

“The possibility of a recession has increased”

“Since the 1990s, central banks had been able to ignore price increases, because inflation expectations remained subdued, he explains to World. But I believe that today they can no longer and are forced to focus on the consequences of inflation. » It must be said that the rise in prices is now close to 8% in the United States and exceeds 6% in the euro zone.

The cycle of rising interest rates has therefore begun. The Fed raised its rate by 0.25% on March 17 and anticipates six additional hikes in 2022, the Bank of England has already raised its rate three times, to 0.75%, and the ECB, among the most interventionist , announced the end of its asset purchase program for the third quarter. For households and businesses, borrowing is starting to cost a little more. At the risk of this giving a serious brake on the economy?

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“The possibility of a recession in 2023 has increased”acknowledges Mr. Balls. It’s not a prediction on his part, and it’s not the most likely scenario, but the risk is real. “We have a shock, that of the war in Ukraine, which is added to another shock, that of the pandemic. A year ago, I didn’t think the comparison to the 1970s was justified, but now we have an energy shock. Central banks are forced to act and demonstrate their will to fight inflation. »

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