Ivanir Bortot: In the fight against inflation, the United States and Europe are threatening the world economy

Ivanir Portode *

The ECB (European Central Bank) and the FED (US Federal Reserve) have begun the process of combating inflation, which will have an impact on the global economy and the growth of Brazil.

It is still too late for economists to assess the extent of the impending recession, especially due to rising interest rates to control rising commodity prices.

Federal Reserve Chairman Jerome Powell reiterated that the US Federal Reserve’s goal is to reduce the current rate of inflation in the United States from 8.6% to 2% a year. Today, interest rates are 1.75%, but further increases are needed to encourage consumption by US residents. US Federal Reserve estimates that the central bank’s interest rate will reach 3.4% per annum to bring inflation within the target of 2%.

These levels of interest rates implemented in the United States are a decisive factor in attracting resources from the rest of the world to the world’s largest economy. Since the dollar is the currency used in trade by all countries, it holds a strong weight as a repository of value and provides protection to savers and investors in all other countries. The dollar has already risen sharply due to the Fed’s recent interest rate hike.

Facing the effects of rising demand for the dollar, Jerome Powell said the central bank was encouraging the international community to refrain from using the dollar, and warned that widespread use of the currency could pose financial sustainability challenges and affect homes, businesses and markets. “For that reason, the central bank is implementing a backbone liquidity facility so that holders of dollar assets can be confident that tensions will ease when these markets are under stress,” Powell said.

Higher interest + higher price = recession

Brazil will certainly not fail to make this major adjustment to the economies of the United States and Europe. The outflow of capital from foreign investors anchored on Brazilian soil will be inevitable. Even sending remittances abroad to Brazilians should be allowed to escape the dangers of the 2022 election results and increase in search of this attractive wage in dollars. Brazil has $ 355 billion in international reserves, and the current government has done little to curb speculation and real devaluation.

The depth of the estimated US recession remains uncertain. The central bank is doing the least damage to growth in order to reduce inflation. Roberto Campos Neto, President of BC, Brazil, has the same goal, especially in an election year. The Brazilian economy has already made great strides towards a recessionary situation due to interest rates of 13.25% per annum. Now, with interest rates rising around the world, it has been decided at the next Copom (Monetary Policy Committee) meeting that the Selic rate should rise to 13.75%.

The winner of next October’s election will face some of the most difficult years of recession and serious financial imbalances associated with the already deteriorating current situation. The accounts of the federal government and the states in Brazil can only achieve a certain balance with economic growth, however, the share of public debt in the federal government today is equal to 78% of GDP (GDP). As the country enters a recession with low economic growth, the resources raised will not be enough to cover the forced costs of staff, social security, education and health, not to mention R $ 5 billion from election funds and grants from the national treasury. Various divisions such as the Manas Free Trade Zone and the Department of Agriculture.

In view of his reaction to the meeting with US President Joe Biden, Brazilian President Jair Bolzano should not have been briefed by his North American representative on the brief monetary policy of the United States. Or do not understand the extent of the problem.

* Journalist graduates from UFRGS with a master’s degree in economic journalism from the Faculty of Economics and Management (FAE / PR), former editor – in – chief Agência Brasil, former reporter and senior editor of Gazeta Mercantil, and former reporter for Folha de S. .. Paul

** This text does not necessarily reflect AGROemDIA’s opinion