One of the currently most difficult tasks in the business world lies in the hands of a man and a woman: Both are lawyers, both over 60, and both get on brilliantly, as they like to emphasize.

Their mission is to keep inflation in check.

But Jerome Powell and Christine Lagarde approach this task quite differently: The President of the European Central Bank (ECB) is acting with restraint, and in an interview with the FAS at the end of November she said: "The increase in inflation will not last." Powell, the head of the American Federal Reserve, on the other hand, in a hearing before the American Senate last Tuesday, described inflation as a “danger that must be taken seriously”.

Dennis Kremer

Editor in the “Money & More” section of the Frankfurter Allgemeine Sunday newspaper.

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The choice of words alone shows that the American is more research-oriented than his European colleague. Financial analysts also expect the US Federal Reserve to raise interest rates four times in 2022. It would be the first rate hike since 2018 and thus the first since the outbreak of the corona pandemic. This expectation also has to do with a number that became known last week: The inflation rate in the United States in 2021 was seven percent, the highest increase since 1982. Ronald Reagan was American President at the time, that's how long ago it was .

In Europe, too, the inflation rate reached historic proportions at 5.0 percent in December: it has not been at this level since the 1990s. But Lagarde and most of her colleagues see the increase as temporary, triggered, for example, by price increases due to disrupted supply chains. In America, on the other hand, people are no longer so sure. Minutes of the Fed show: The central bankers fear that inflation will prove to be stubborn, for example because wages are rising and the economy is growing strongly. Not bad news actually. And yet they are increasing the pressure on the Fed.

So there may be plausible reasons for Powell's and Lagarde's different approaches.

However, such differences in monetary policy are not popular on the stock exchange, because they cause unrest.

But under certain conditions also for new opportunities.

There has been enough unrest in recent weeks, albeit in an area of ​​the financial market that the public usually pays less attention to than the ups and downs in share prices: we're talking about bonds.

Since mid-December, the yield on ten-year American government bonds has risen by 0.4 percentage points to around 1.7 percent.

That sounds small, but in the case of bonds, it's a startling shift.

This reflects the higher inflation expectations of market participants.

That alone might not be such a big problem. But America's government bonds are also an important benchmark for investors around the world: If investors calculate with higher interest rates, other asset classes such as equities lose value in comparison. It is then more attractive to invest in fail-safe US government bonds than in risky public companies whose earnings development is difficult to predict.

The past few days have shown some signs of where this can lead: the prices of American technology stocks in particular have fallen significantly, with companies that make little or no profits being particularly affected. An example of this is the price loss of cloud provider Snowflake, one of the hyped stocks of the past year. But the American technology exchange Nasdaq also lost significantly. This alone shows that the whole thing has the potential to become a major financial drama.

Thanks to Jerome Powell it didn't get any worse.

Because during his appearance before the Senate, he managed to maintain a remarkable balance: On the one hand, he assured that the Fed would take decisive action against inflation.

On the other hand, he allayed the audience's concern that inflationary pressures would continue to rise unchecked, for example by emphasizing his hope that supply chain problems would improve.