According to IMF chief Kristalina Georgieva, debt in the US has not yet fallen, so economic cooling is out of the question. So the US Federal Reserve should continue to raise interest rates. While this is mostly bad news for investors, Georgieva is right, according to Rabobank macroeconomist Philip Marie.

Fed chief Jerome Powell said earlier last month that banks would be more cautious about lending after the Silicon Valley banking collapse, which, among other things, could slow the economy. “But so far we haven’t seen much of it,” says Mary. “So it looks like the reality is that eventually rates will continue to rise.”

According to Marie, the fact that people are still borrowing is an indication of how strong the US economy is, emphasizing that the economy is seriously overheated. And the only way to reduce it is to raise interest rates. ‘Plus, a recession will probably be called for after all.’

Long term

Mere is well aware that interest rate hikes affect the economy at a slower pace, but believes this is where the bigger problem lies. For that reason, Fed Chairman Jerome Powell wanted to slow down and “wait everything out,” he continues. “But about half of the ECB’s policy group wants to go ahead, so there’s a good chance the central bank will have to compensate.”

If the central bank does so, the chances of raising interest rates too high and the recession will increase. “It’s hard to cool an economy without triggering a recession,” says Mary. ‘So that was an unrealistic starting point anyway. But the chance of recession increases this way.

Room

There’s still plenty of room, Mary thinks. US inflation is currently hovering around five percent, as is the policy rate. “So in real terms – adjusted for inflation – interest rates are still at zero,” Mary says. ‘So it still doesn’t make much sense. On balance, I think a full percentage point can be added, not exceptional from a historical perspective.