The interest rate waltz: the difficulties of striking a balance?

The very confusing program that caused confusion in minds and sent shockwaves through the markets. Most traders now believe that the US Central Bank will not consider cutting rates until the summer of 2024, and the same is true for Europe! When we see how high rates are hurting the financial health of small businesses as well as residential real estate and the construction sector, we can start to worry. Not surprisingly, confidence indicators are falling everywhere again.

We realize that it will be difficult to find a balance, especially in Europe where not all countries are in the same situation.

The German recession has probably already started and France is not in the best shape. The energy crisis and administrative problems emanating from Europe are undermining the optimism of many entrepreneurs, so much so that in Germany and France voices are emerging in favor of easing restrictions related to the decarbonization of industry as it is too expensive, especially in the current inflationary situation and especially for small and medium-sized enterprises.

Demand for oil has risen again, with the International Energy Agency predicting that it will reach a record 105 million barrels per day by 2024! OPEC's decision to cut production in the fourth quarter of 2023 sent shockwaves and oil prices started to rise again.

Kovid and the war in Ukraine have severely undermined the public finances of many countries, which now have to spend much more money than before to provide financing for these debts, which have sometimes multiplied. States also face an additional complexity because, until recently, government liabilities were easily absorbed by the European Central Bank as part of its post-Brexit and post-energy shock policies. Now that the main objective is to reduce the size of their balance sheet - that is, to reduce the injection of liquidity into the financial systems - we need to find other buyers for this government paper. And investors want a corresponding return on their investments in a world with rising inflation, which further pushes long-term interest rates up.

We have these problems of public debt and too large deficits to solve. This portends difficult days in many countries, where there will be attempts to cut spending, raise taxes and thus further undermine the confidence of economic agents. A challenging future!

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