Central bankers are holding emergency meetings.
Just about every major banker and finance minister in the world is meeting in Washington, D.C., this week, following two rushed, secretive meetings of the Federal Reserve and another instantaneous and rare meeting between the Fed Chair and the president of the United States. These and other emergency bank meetings around the world cause one to wonder what is going down.
The IMF, which speaks truth a little more often than most, has issued a warning.
The financial stability report says there is “growing concern about a mutually reinforcing dynamic of weak growth and low inflation that could produce sustained economic and financial weakness”. The IMF is also concerned that in some countries inflation is too low.
Uncertainty about China’s economic performance is also a factor.
The IMF says if the outlook for economic growth and inflation were to deteriorate further there would be an increased risk of a loss of confidence and renewed bouts of financial market volatility (something the world experienced earlier this year).
Borrowing costs could then rise, especially for debtors perceived as more at risk of default.
The report continues: “In such circumstances, rising risk premiums may tighten financial conditions further, creating a pernicious feedback loop of fragile confidence, weaker growth, lower inflation, and rising debt burdens.”
This supports my theory that central banks do not have absolute control over interest rates. I expect rates will rise when citizens finally understand the risks.
Everything will blow up if rates rise.