He added: “Banks everywhere will be shoring up their capital and money that they thought was free to be lent may not be.”
Banks are now expected to be more reluctant to lend money over the coming year and interest rates will no longer rise as sharply, according to the CEBR.
Mr Williams said the Bank of England is very unlikely to raise rates by more than 25 percentage points this week and may not even do that. In the US, the CEBR expects interest rates not to be raised again.
Mr Williams said: “We will see that the fight against inflation will have been called off before inflation has been fully beaten. You can’t fight a war on two fronts at once and dealing with the banking crisis is much more important than squeezing out the remnants of inflation.”
So, if banks lend less then this means smaller increases in the money supply. Which, quite naturally, moderates inflation without any need to raise formal interest rates.
Not that we’d actually want to have a banking crisis in order to reduce inflation but that will be the effect all the same.
Banks are now expected to be more reluctant to lend money over the coming year and interest rates will no longer rise as sharply, according to the CEBR.
The connection there doesn’t make sense to me. If the supply is reduced & the demand is still there, one would expect the price of borrowed money to rise. Although macro. Why would I expect it to make sense?
Market rates rise – yes. Official, or base rate, does not. Another way of saying what I’ve just said. Inflation reduces because of the reduction in lending.
The mistake the Tel is making with that little part is that long term interest rates are determined by the market, not base rates (which influence them, but not determine them).
It’s paywalled, so I can’t see who “Mr Williams” is, but not knowing the difference between a percentage point and a basis point doesn’t give confidence.
“A key sticking point was said to be the future of Credit Suisse’s troubled investment bank, which has a significant presence in London.”
Aha, it will provide an opportunity for the quislings to bang on about Brexit.
Hmmm..But isn’t most of the current inflation driven by the price shock for gas and its knock-on effects in the wider economy?
Something, something a lot more expensive energy, with no way to compensate for the shortfall at that end?
Not inflation because there’s an unhealthy amount of tokens around for a given value, but things actually becoming more expensive because there’s less of a basic requirement to go around, causing the price of everything associated with it to rise?
I’m but an egg when it comes to economy, even more so when it comes to banking, but I can’t help feeling that some Big Brains are trying to “combat”the current inflation ass-backwards.
Grikath
Since TPTB were the ones who instituted the sanctions and raised the price of gas, it’d certainly make sense for them to try and pretend something else caused the price rise.
“the Bank of England is very unlikely to raise rates by more than 25 percentage points this week”
!!!! Can we all just hope they don’t raise rates by 25 percentage points?
Even 25 percent would be a little frightening.
Do we think he means _basis_ points?