Why the US interest rate turnaround also helps the German economy


analysis

Status: 19.09.2024 14:26

It’s not just stock prices that are rising because the US Federal Reserve has significantly lowered the key interest rate for the first time in years. The move has much more far-reaching consequences – including for the German economy.

Claudia Wehrle

The US Federal Reserve has delivered and initiated the interest rate turnaround. The key interest rate is going down by 0.5 percentage points, announced US Federal Reserve Chairman Jerome Powell yesterday evening. That is more than many had expected beforehand.

Large part of exports to the United States

This is initially good news for the US economy, as it will make investing, borrowing and refinancing more attractive for companies. Companies in this country should also benefit, believes Hans-Jörg Naumer of Allianz Global Investors.

American companies often meet their increased demand for capital goods and other products in Germany. The United States has now become the most important trading partner for many German companies.

“Almost ten percent of our exports go there,” says Naumer, pointing out the urgency of good trade relations, especially for export-oriented countries. “We can be happy if we break even on the growth side in Germany.”

Fed wants to avert recession

But the interest rate turnaround in the United States signals much more. Perhaps the most important message is that the central bankers in the USA seem to believe that they have made a big step forward in combating inflation. The goal has not yet been achieved, but the high inflation rates are no longer there. And that is good news.

Another important message is that the US Federal Reserve seems to be trying by all means to prevent a recession in the US.

Recently there have been repeated problems. Bad news has come from the high-tech industry. This is one of the industries that plays an important role in overall economic development. Google, Microsoft & Co. have laid off thousands of employees. When it comes to artificial intelligence, many were caught off guard. This new technology can open up new business areas and make areas more efficient, but all of this takes time and is also quite expensive. These investments must first pay for themselves.

Companies must reorient themselves

Another problem is that major transformation processes are currently taking place not only in Germany and many European countries, but also in the USA. This means that old business models no longer work. Companies have to reorient themselves. Whether this can be achieved is not a foregone conclusion.

Carsten Mumm, chief economist at the Hamburg private bank Donner & Reuschel, still does not believe that the worst will happen in the USA in terms of economic development. “The USA can control a large part of overall economic demand itself,” he says, referring to private consumption. “And the Fed can actually influence this relatively well itself by cutting interest rates.” Mumm is confident and believes “that we can avoid a recession.”

Much depends on the US election

You have to imagine it like this: Many Americans live on credit. They take on debt – whether to be able to afford something, to finance a degree or to buy a house. Unlike in our country, real estate loans often have a variable interest rate. This is why interest rate cuts often have a direct impact on citizens.

However, experts warn against too much euphoria. A reduction in interest rates may be good news for many companies and for many citizens who have high levels of debt. But ultimately, a lot in the USA will depend on the outcome of the presidential election. US presidential candidate Donald Trump, for example, makes no secret of the fact that he wants to intervene in the policies of the US Federal Reserve. Further tariffs are being discussed. And that, in turn, will have an impact on global trade.

Claudia Wehrle, HR, tagesschau, 19.09.2024 13:53

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