Rate Hikes Would Be a Monumental Mistake

The Federal Reserve and European Central Bank are considering rate hikes in September, but experts warn that this would be a monumental mistake. According to Daniel Lacalle, there is no overheating, private credit excess, or runaway money creation in the economy. Instead, the issue is an imported temporary energy shock and fiscal problems.

The US economy grew at an annual rate of 1.5% in Q2, while federal spending remains flat. Nonfarm payrolls fell by 23,000 in July, and annual job creation is lower than potential. The European situation is even worse, with GDP rising only 0.4% in Q2, excluding Ireland's 3.9% increase.

The business lending boom has already moderated, and central bank tightening would only make things worse. Broad money M3 grew 3.4% annually in July, while M1 decelerated to 3.1%. With real GDP up 1.0% year on year and a deflator near 3%, money is growing at or below the pace of nominal GDP.