Interest rates: the Fed is “too restrictive” and Europe is “too late” says Youhodler’s chief of markets

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on Feb 2, 2024
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  • Read our exclusive interview in which Youhodler chief of markets Ruslan Lienkha.
  • In it, Lienkha explains what is wrong with interest rates in 2024 and what will happen next.
  • Among other things, read why the Fed is too restrictive, while the ECB is too late.

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Perhaps the most burning question on every investor and consumer’s mind for the whole of 2024 is: when will interest rate cuts come? And just what is going on with the rates policy in several countries?

We spoke to Ruslan Lienkha, chief of markets at fintech platform YouHodler, to find out. Read our exclusive interview below.

Invezz: Are the current Federal Reserve rates overly restrictive for economic growth in the US?

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Lienkha: I think it’s really restrictive, the Fed’s rates policy. We saw such [high] interest rates last only in the 2008 financial crisis and, even then, inflation in the US was much lower than recent peaks. I think that any monetary policy in developed countries where the interest rate is above five percent, it’s very restrictive and painful for the economy in general.

Currently, we can see that, if the Federal Reserve had left such high rates without any other actions, it would be a disaster for the economy. But what they do is this quantitative tightening, but they also help some sectors like banking, for example smaller and medium sized banks. On one side, it’s tightening – but from other side, government quite actively spends about hundred million dollars every day supporting the banking system, just to help the banking system in the United States.

At the moment, the US economy is more or less okay. 2023 was quite successful with such interest rates, but in general such high rates will affect more economies.

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And what about Europe and it’s fight with inflation, for which we saw quite a lot of data out this week?

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Lienkha: I think [rate hikes] should have been started a little bit earlier, in the case of Europe. There is still some opportunity for them to find a ‘soft landing’, but production is struggling, the economy is struggling in many countries and for example Europe escaped from a total recession this week just through the figures from Spain, Portugal, Italy, Greece. So, Europe is more complicated than the United States.

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In Europe, such high rates are quite painful for the economy. It’s quite a high rate for the economy, but the US is managing to keep this balance right now between possible recession and inflation. In Europe it looks a bit more fragile because this balance is more difficult to keep and at the moment quite imbalanced.

If you were to guess, when would you say the timing of rate cuts will happen in Europe?

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From our experience we can see that Europe Central Bank is behind on decisions always. Probably it will be the same this time around. I don’t believe that they will start rate cuts earlier than US.

Also, these kinds of cycles in the economy (from interest increases to high rates and then interest cuts) these periods take time. For example, this interest increase was one of the highest and the fastest we have during last 25 years. But still it took almost two years to get there. So, I’m sure that the period we’re in now, that of high rates, won’t be too short. Because then it wouldn’t work.

I believe that they will start with rate cuts in the summer in June of this year in positive scenario. I think in my opinion it was a late start of interest rate increase, but now it’s quite restrictive, but they’re keeping a high rate to ensure inflation goes down. And I think that interest rate cuts should happen.

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