I hope I'm wrong, but it very much appears that the ECB are delaying on inflicting inevitable pain, making it more likely the problem will go from chronic to acute.The E.U. continuing to let the U.S. take the lead and do all the heavy lifting on global inflation but Americans are now spending 5% more than pre-C-19 as sales rise.
I think most people don't realise how weird the current interest rates are:
It's almost certainly what's driving insane property prices, folks tend to be pretty terrible at looking out too far in the future. a €500,000 mortgage only accumulates €10k in interest at 2% interest, which is generally fine for most people.
For almost all of the 70s, 80s and into the 90s, interest rates in Ireland were well above 10%, which is racks up €50k a year in extra interest costs on that €500,000.
Not saying interest rates are about to go above 10%, but applying the Taylor Rule, they really should be well over that mark by now. Giving Ireland a long term trend GDP of 4%, using the Taylor Rule, interest rates should be 14.25%*
*r = p + 0.5y + 0.5(p - 2) + 2
- r = nominal fed funds rate
- p = the rate of inflation
- y = the percent deviation between current real GDP and the long-term linear trend in GDP
r= 9.1 + 0.5 * (4-4.8) + 0.5 * (9.1 - 2) + 2