Interest rates moving from ZIRP to NIRP to Volckerization
Before the pandemic “zero interest rate policy” (ZIRP) was the norm. Federal Reserve, Bank of England, European central bank, Bank of Japan were following a near ZIRP approach for economy.
Covid brought in stimulus or free money and “negative interest rate policy” (NIRP). NIRP ensured that growth and employment did not sink and growth fell but within manageable limit. NIRP and stimulus had one big draw back. They caused asset bubbles and a historical high inflation. Ukraine acted as a double whammy to commodity price inflation and overall global inflation.
NIRP has been followed by Volckerization of interest rates. Former Federal Reserve chairman Paul Volcker is the master to aggressively raise interest rates to meet his economic goals. Energy price and electricity prices ballooned in Eurozone, UK and USA. Eurozone nations accumulated natural gas and crude oil at any cost. They were worried over meeting their summer needs. They are worried over meeting the natural gas demand for the upcoming winters.
The net result, the Federal Reserve has raised rates by 300 basis points so far this year. Fed funds futures traders are pricing in a 95% chance of a 75 basis points hike at the central bank's Nov. 2 meeting. Futures show traders pricing in a 75% probability of another 75 bps hike in December, according to CME Group data.
There is an old saying is that the world gets fever when the federal reserve sneezes. The federal reserve has got the interest rate hike fever. The world has caught the covid of interest rates. Nations want to raise interest rates at the cost of growth.
COMEX GOLD FUTURES VERSUS US TEN YEAR BOND YIELD