Why the U.S. Should Worry about Italy and France

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Americans seem to mainly focus on the economic news in our own backyards and pretty much ignore the economic turmoil that’s occurring with our European allies.

Case in point: This week Loretta Mester, who is the President of the Federal Reserve Bank of Cleveland, said she will be “comfortable with the central bank raising interest rates now as inflation pressures increase.” She added that she is “positive with the economy and that the U.S. economy is on sound footing and would be comfortable with an increase in the funds rate at this point, if the economy keeps going the way it’s going.”

Mester’s statements made headlines in all the financial newspapers, networks and websites, but the breaking news that received far less attention, (but is even more important) is the fact that France and Italy face increasing economic turmoil which could threaten both countries’ memberships in the European Union (EU) and toss the global economy into chaos.

Dr. Mester’s comments came after the monthly Consumer Price Index (CPI) showed that the amount of money Americans had to spend on goods and services (except for food and energy) rose by 0.6% in January: the biggest hike in 4 years. Over the past year the Consumer Price Index has climbed 2.5%, the biggest increase in a 12-month span in five years. Economists like Dr. Mester say the news is good for the economy because it will raise inflation, and will lead to another rise in the Federal Funds Rate.

But the news which is being pretty much being ignored overseas is that Italy poses the greatest threat to the stability of the Euro, despite the upcoming Presidential election in France. Italy’s former Prime Minister, Matteo Renzi, resigned as leader of Italy’s ruling Democratic Party on Sunday, and one of the candidates running for President of France is promising to “re-negotiate France’s membership in the European Union (EU)

First it was Britain (with Brexit) voting to leave the European Union. Will others follow? Only time will tell. It appears that the economic instability of European nations seems to be the last thing on the Fed’s mind in the U.S. but we all know that the world’s economies are inter-connected, and if the European Union falls apart, logic tells us it cannot be of good thing for the U.S. economy.

Global instability is a very real concern, and it’s not something that you should worry about having a negative impact on your retirement nest-egg.

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