Interest Rate Cut
Central banks, such as the Federal Reserve or the European Central Bank (ECB), sometimes lower interest rates to stimulate economic growth. A rate cut makes borrowing cheaper and encourages consumers and businesses to invest and spend more.
Inflation
Inflation refers to the rise in the general price level of goods and services. It is an important indicator for central banks because excessive inflation reduces consumers' purchasing power.
Deflation
Deflation is an economic situation in which the general price level of goods and services falls, which can lead to lower consumer spending, higher debt burdens, and slower economic growth. Central banks try to avoid deflation because it can harm the economy.
Purchasing Power Parity (PPP)
An economic theory that states that exchange rates should move towards the level where the prices of an identical basket of goods are equal in two countries in the long run. It is often used to evaluate whether a currency is over- or undervalued.
Productivity Growth
This refers to the increase in the amount of output per worker. Higher productivity contributes to economic growth and can limit inflation by offsetting higher wage costs.
Government Bonds
These are debt securities issued by governments to borrow money. The interest on government bonds is influenced by economic prospects and monetary policy. They are seen as a safe investment, especially during times of economic uncertainty.
Recession
A period of economic decline, often characterized by a decrease in GDP, higher unemployment, and a drop in spending and investment. Central banks often lower interest rates to combat recessions.
Geopolitical Tensions
Tensions between countries, such as the rivalry between the US and China, can lead to market uncertainty. Investors often seek safe havens, such as gold, when geopolitical risks increase.
Currency Pair (Forex)
The exchange rate between two currencies, such as EUR/USD or USD/JPY. These are heavily influenced by interest rate expectations, economic growth, and geopolitical risks.
Long-term Interest Rates
The long-term interest rate, such as that on 10-year government bonds, affects financing costs for governments and businesses. Higher long-term rates can lead to lower investments as borrowing becomes more expensive.
Flight to Safety
In times of economic or geopolitical uncertainty, investors often seek safe havens such as gold or government bonds from strong economies. These assets offer more stability and protection against risks.
Potential Growth
This is the maximum long-term growth of an economy without increasing inflation. It is determined by factors such as workforce growth and productivity. Lower potential growth limits the opportunities for economic expansion without inflationary pressure.
(De)globalization
Globalization refers to increasing economic integration between countries, while deglobalization describes the opposite process, where countries withdraw from global trade and investment networks. Deglobalization can arise from geopolitical tensions or protectionist policies.
Wage-Price Spiral
This phenomenon occurs when higher wages lead to higher prices (inflation), which in turn leads to further wage demands. This can become a vicious cycle, where inflation escalates due to the mutual reinforcement of wage increases and price rises.
Tactical Asset Allocation
This is an investment strategy in which the distribution of asset classes (such as stocks, bonds, real estate) is adjusted in the short term based on market conditions. Investors try to capitalize on market opportunities by shifting between different assets.
Fed Funds Futures
Fed funds futures are financial contracts that speculate on the future direction of the US federal funds rate, the interest rate that banks charge each other for short-term loans. Investors use these contracts to price in expectations about the Federal Reserve's monetary policy.
Soft Landing
This refers to an economic situation where the central bank succeeds in reducing inflation by raising interest rates without causing a recession. The goal is to slow the economy but not push it into contraction.
Populism
Populism is a political approach that appeals to the concerns and emotions of "the common people" by offering simple solutions to complex problems. It can lead to protectionism and isolationism, affecting trade and economic growth.
Credit Crisis
A situation where financial institutions struggle to meet their short-term obligations due to a lack of liquidity. This can lead to broader economic instability as businesses and consumers lose access to loans.
Risk of a Credit Crisis
This risk arises when high debt levels, combined with economic weakness or rising interest rates, cause banks and other financial institutions to struggle to meet their obligations. This can lead to a broader economic collapse.
Monetary Easing
A policy by central banks to increase the money supply and stimulate the economy, often by lowering interest rates or purchasing assets. This policy can increase inflation but also promote growth during economic downturns.
Interest Rate Expectations
The expectations of investors and markets regarding the future direction of interest rates, based on economic indicators such as inflation, growth, and unemployment. These expectations are important for determining asset prices such as bonds.
Immigration and Economic Growth
Immigration can contribute to economic growth by increasing the labor force. However, it can also pose challenges, such as integration into the labor market and potential strains on social services.
Fiscal Stimulus
Fiscal stimulus refers to government measures, such as tax cuts or increased public spending, to stimulate economic activity. It is often used to prevent a recession or promote growth.
Tight Labor Market
A situation where unemployment is low, and employers struggle to find enough qualified workers. This can lead to higher wages and inflationary pressure as companies raise wages to attract talent.
Aging Population
The aging of the population refers to the increasing share of elderly people in society. This has major implications for government spending, particularly for pensions and healthcare, and can lead to slower economic growth.
Asset Prices
The value of financial assets such as stocks, bonds, and real estate. Asset prices often rise during periods of low interest rates, as investors seek higher returns. This can lead to bubbles if prices rise too far relative to their underlying value.
Real Interest Rate
This is the nominal interest rate minus inflation. The real interest rate provides a better sense of the actual cost of borrowing and the return on savings. A high real interest rate can slow economic growth, while a low real interest rate can stimulate investment.
Technological Progress
Technological progress, such as artificial intelligence, increases productivity and can lead to lower costs and higher economic growth. However, it can also result in job losses in certain sectors, especially as automation increases.
Potential Growth
Potential growth is the maximum rate at which an economy can grow without causing inflation. This is influenced by factors such as productivity growth and the growth of the labor force. Potential growth is an important measure for policymakers to determine how far the economy is operating above or below its capacity.
Gold as a Safe Haven
Gold is often seen as a safe haven in times of economic or geopolitical uncertainty. Investors buy gold when they expect currencies or other assets to lose value, as it retains its value better.
Inflation Expectations
Inflation expectations refer to the predictions of businesses, consumers, and investors about future price increases. High inflation expectations can lead to higher prices and wages as businesses and workers try to protect themselves from losing purchasing power.