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Expand chart
Data: FactSet; Chart: Axios Visuals

Turkish President Recep Tayyip Erdoğan is plowing forward with a plan to prove economists wrong.

Driving the news: Turkey’s central bank, under pressure from Erdoğan, on Thursday slashed interest rates for the fourth time in as many months, despite official inflation figures running at over 21%.

Why it matters: Erdoğan is doubling — or quadrupling — down on policies that are roiling its financial markets and hurting ordinary Turkish citizens.

  • In response to the rate cut, the Turkish lira has fallen another 12% relative to the dollar, bringing its plunge to about 50% since rate cuts began in September.

The impact: Street vendors have taken to selling half bagels. And Turkish residents are converting their savings into foreign currencies and gold, as Menekse Tokyay reported for Axios from Ankara.

The backstory: Erdoğan believes that cutting rates will help tame inflation, the opposite of economic orthodoxy. His thinking is that a lower lira will make its exports more attractive — stimulating jobs. The flip side of that, of course, is that imports to Turkey are more expensive.

  • Acknowledging the hardship on Turkey's working class, Erdoğan on Thursday announced he's raising Turkey's minimum wage by an eye-popping 50% — a move that could also stoke further inflation, Bloomberg reports.

What to watch: "We think that the lira will remain under pressure and that this could lead to the introduction of capital controls," wrote Capital Economics analysts in a research note.

The bottom line: “If it were not for the pain and suffering inflicted on 84 million people, this would be a fascinating economics experiment," Refet Gürkaynak, a professor of economics at Bilkent University in Ankara, tells the FT.

Go deeper

Jan 12, 2022 - Politics & Policy

White House braces for brutal inflation report

Photo: Courtesy of the White House

The White House is bracing for another bad report Wednesday on inflation — but now expects it to slow down by the end of the year, administration officials tell Axios.

Why it matters: The Biden administration had been labeling price hikes as "transitory." By publicly warning the Consumer Price Index December reading shows inflation will linger through 2022, officials are trying to temper public expectations and minimize the bad-news blow.

Europe's energy reliance on Russia is a crucial shield for Putin

Illustration: Annelise Capossela/Axios

Cracks in the NATO alliance regarding sanctions for Russia should President Vladimir Putin order troops into Ukraine are in large part based on energy supply concerns.

Why it matters: Russia holds tremendous leverage over some European countries because it provides roughly 40% of Europe's natural gas supply. In Germany, this figure is greater than 50%.

Why the Fed might want to jolt the markets

Fed chair Jerome Powell at a hearing earlier this month. Photo: Brendan Smialowski-Pool/Getty Images

So far, financial markets are cooperating nicely with the Federal Reserve's efforts to restrain inflation. They're doing the Fed's work for it by creating tighter financial conditions, in a distinctly non-panicky way.

  • But as the central bank's policymakers meet this week, an underlying question they face is whether the adjustment is happening too slowly.