Fighting inflation in 2024: How do rising interest rates affect the economy?

Fighting inflation in 2024: How do rising interest rates affect the economy?

According to a report by amp.zdf.de, the challenge ahead in the fight against high inflation is to find a balance. An interest rate increase could curb inflation, but also slow down the economy and even plunge it into a recession.

According to Patrick Franke, securities strategist at Helaba, central banks will continue to be the focus in 2024. High interest rates would reduce the attractiveness of stocks and the markets would have to adapt to monetary policy. A quick interest rate cut by the central banks is not expected and key interest rates could only fall again in the middle of the year, which could lead to a comeback in interest investments.

This could also result in positive total returns in most bond market segments next year, as DWS pension expert Oliver Eichmann predicts. However, increased interest rates would restrict companies' financial flexibility and also make it more expensive for states to take on debt, which in turn could jeopardize some reform and infrastructure projects.

According to the report, it is advisable for the fund company Union Investment to wait and see, because after a difficult first half of the year there could be potential, supported by declining inflation, increasing investments and a stabilizing economy. Union Investment's investment strategy predicts price increases in line with company profits of around ten percent.

However, many investment experts in other companies are more cautious and, for example, place the DAX at 17,500 points at the end of 2024, which corresponds to an increase of three to six percent.

This creates a difficult situation in which investors and financial experts must act cautiously and prudently in order to prepare for possible market developments.