After inflation spiked and interest rates were subsequently raised in both the US and the euro area, the risk of a second wave of price rises is beginning to be considered. These debates are starting to open up, particularly because of the upcoming US presidential election, according to a Finbold report. Indeed, the issue of macroeconomic indicators will be one of the most important.

Inflation may not have the last word

Although inflation has fallen significantly, it still has not reached the desired level. In fact, since October, the inflation rate has stopped declining and has only stagnated. It is 3.3% in the US and 2.5% in the euro area. The central banks' inflation target is at 2%, but that is not the biggest problem. It is interest rates that are too high.

If inflation were to rise at low interest rates, the availability of borrowing money would naturally decrease. However, if inflation now starts to rise at 4% to 5% interest, borrowing will become unaffordable for a large percentage of the population.

The risk of a second wave of inflation has also been warned about by Nobel Prize winners. They all agree that Trump's economic plans are significantly worse and will lead to inflation rising again. Trump will also push for interest rate cuts, which may cause inflation to rise in the US at the moment.

What is inflation?

Inflation is an economic phenomenon that is defined as a long-term increase in prices and a decrease in the purchasing power of money. The inflation percentage represents how much the money in a zero-interest account depreciates in value.

Interest rates are still extremely high

At its last meeting, the European Central Bank (ECB) surprised by deciding to cut interest rates for the first time from 4.5% to 4.25%. In contrast, the same level of 5.5% from July 2023 is still in force in the US.

Trump's policy could cause inflation to rise again not only in the US but also in the eurozone. The endless rise in technology stocks also remains an issue. Indeed, the concerns of Nobel Prize-winning economists call into question the strength of the US stock market. More and more economists believe that the stock market is overvalued.

Hedge funds are aggressively unloading technology stocks at a pace not seen in years. This could be the first sign that the stock market will soon hit a top. The main drivers are technology companies and the demand for artificial intelligence. But the latest data suggests that the bubble has begun to burst.