(Phil Carr – The Gold & Silver Club)
There is no denying that Central banks across the world have fallen “way behind the curve” in tackling inflation and now find themselves in a high-stakes race – frantically trying to raise rates too fast, too late – And the European Central Bank is definitely no exception.
Looking ahead to this week, trader’s attention has now shifted to the European Central Banks monetary policy meeting, scheduled for Thursday.
As one of the “Big 4 Central Banks”, this event is anticipated to be a major market mover – especially as the ECB is expected to hike interest rates sharply after Eurozone inflation hit a record high in August, driven mainly by soaring energy prices.
The ECB’s sense of urgency in tackling inflation has overtaken concerns over the damage an aggressive rate increase would inflict to the Eurozone economy.
Several ECB rate-setters have said they are focusing more on current record levels of inflation to decide policy, moving away from an earlier, more dovish approach that hinged mostly on where they expected prices to be two years from now.
The latest hawkish shift has been led by the ECBs economists, who emphasised at the Jackson Hole Economic gathering a week ago that the central bank would be willing to raise rates more aggressively to a level that would lead to higher unemployment and possibly recession to fight inflation.
By failing to move aggressively, the ECB not only risks getting left behind the rest of its peers in the global fight against rapidly surging inflation, but also risks to return to the economic shock of the 1970s, with inflation persistently running above double digits.
In contrast, the likes of the Bank of England and the U.S Federal Reserve have launched an uber-hawkish fight against the red-hot rise in the cost of living.
The Bank of England has lifted its own base rate at six consecutive monetary policy meetings and is set to rate rates by a whopping 75 basis-points this month – in what would be its biggest rate hike since 1989.
Elsewhere, the Federal Reserve has now raised interest rates by a whopping 225 basis points since March – its most aggressive monetary tightening cycle since the early 1980s – and they certainly aren’t finished yet.
Expectations are now running high, that the Fed could be on the cusp of delivering an “historic super-sized” 100 basis-point rate hike at the central banks upcoming policy meeting in mid-September.
The big question now, is will the ECB raise interest rates by a “super-sized” 75 basis point hike this week or will they surprise the markets with an even bigger and bold move
Regardless of the outcome, Gold remains a traders’ market packed with endless lucrative opportunities to capitalize on the short-term macro-driven volatility – And that’s the most optimal strategy right now!
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