Central Banks Summary June 30, 2022

European Central Bank

Christine Lagarde, President of the ECB, together with Governor Bailey of the Bank of England and Jerome Powell, the Chairman of the Federal Reserve, spoke at the ECB Forum this past Wednesday in Sintra.

In this annual forum, the current economic situation is discussed and Lagarde took the opportunity to mention that she considers it unlikely that we will return to a low inflation economy in the coming years. She believes that the low inflation period is thanks to globalization and cost reduction in general. But due to the impact of the pandemic and the recent geopolitical conflict they are facing, the scenario is changing.

She reminded us that inflation expectations are high, despite the fact that until recently she said that transient inflation was expected. She also mentioned that unemployment is at an all-time low and that the European economy is still in the recovery process.

Lagarde revealed that the ECB may be more aggressive if inflation remains persistent or continues to rise, with the target of keeping inflation stable near 2%.

Federal Reserve

Jerome Powell tried to comfort investors, reinforcing the idea that the American economy is in good health and strong enough to support the rise in the US reference interest rate.

Also mentioned the goal of reaching a stable inflation rate close to 2%. To do this the Federal Reserve needs to reduce inflation drastically, and they are planning to make another increase in their benchmark interest rate of at least 0.50%, with the possibility of 0.75% if there is an economic indication to do so.

He admits that they want to prevent this monetary policy from resulting in a recession. A serious possibility if the increase in interest rates increases in such a way that it creates a strong economic slowdown.

Bank of England

According to Governor Bailey, the United Kingdom is starting to show some signs of economic slowdown. In this region inflation is expected to exceed 11% in October, hence they are in a worse economic situation.

He says that his options are open when it comes to fighting rising inflation. However, a rise in the central interest rate and a slowdown in the economy is quite likely during the coming months.

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