The president of the European Central Bank (ECB), christine lagardehas warned this Friday that, although they have achieved “progress” against high inflation Thanks to the tightening of monetary policy, the “fight not yet won”. during his speech at the annual meeting of central bankers jackson hole (Wyoming), the senior French official has avoided referring to whether her institution will continue to raise rates from the September meeting or leave unchanged at 4.25% (highest in 15 years), two possibilities that he left open at the end of July. But at the time, cooled expectations of those who believe that the goal could already have been reached end of the cycle of increases of the price of money in the euro zone.
“In this era of uncertaintyit is even more important that central banks provide a nominal anchor for the economy and guarantee stability prices in accordance with their respective mandates. In the current environment, this means – for the ECB – setting interest rates at levels restrictive enough during the as long as it takes to achieve a timely return of inflation to our aim medium term Of 2%“, has held.
That 2% target, he added, it will not movedespite the voices that defend that in the post-pandemic economic world it would be convenient to raise it (which would give margin to smooth monetary policy before). “In front of a changing worldmonetary policy should not itself become a source of uncertainty. This will be crucial to keep inflation expectations firmly anchored even when there is temporary deviations of our goal, as may be the case in a economy more prone to shocks. And it will also be key to maintaining the public trust that, even in a new environment, we will not lose sight of our goal. We must and will keep inflation at 2% in the medium term,” she argued.
clear and flexible
Lagarde, in this sense, has defended the “clarity” provided by having a clear objective, but at the same time it has maintained that central banks should be “flexible” Given the “complexity” of the economic and geopolitical scenario after the covid and the invasion of Ukraine for Russia. It is for this reason, he has justified, that the ECB no longer advances more or less clearly what it plans to do with interest rates, but has chosen to make the decisions meeting to meeting and based on three criteria (the inflation outlook, core inflation dynamics, and the strength of monetary policy transmission).
The third element that Lagarde has claimed that central bankers must have in the new environment is “modesty” to keep his “credibility” before the population. “While we must continue to strive to improve our vision for the medium term, we must also be clear about the limits of what we know currently and what our policy can achieve“, has defended before admitting that the investigations suggest that the households trust less in the forecasts of the central banks when they have recently been wrong, as happened at the beginning of the inflationary shock, which was accused of transient.
After marking a maximum of 10.6% in October, the Headline CPI for the euro zone it has moderated and in July it fell from 5.5% in June to 5.3%. However, the underlying indicator held at 5.5% for the second consecutive month, above the level of May (5.3%) and just below the maximum reached in March (5.7%). Besides, the economy gives symptoms of contraction: grew by 0.3% in the second quarter, after stagnating in the first and falling by 0.1% in the last of 2022, while the latest data suggests that it could contract by 0.2% in the third. He unemploymentYes, it is still at historical lows, but at 6.4%.
insufficient cooling
In the same forum, the president of the Federal Reserve (EDF), Jerome Powell has warned that the central bank of the dollar is “attentive to the signs That the economy (American) could not be getting cold as expected.” That is, you are analyzing whether the rate hikes they would not be effective enough to curb demand until inflation is brought down to its target of 2% in the medium term. But at the same time, the world’s top central banker has also ensured that the institution will act “carefully” and has once again left it open -as it did in July- whether it will continue to raise rates or will keep at the current 5.25%-5.5%.
“As usual, we navigate guided by the stars under a cloudy sky. In such circumstances, risk management considerations are critical. In future meetings, we will assess our progress based on the totality of data and evolving prospects and risks. Based on this evaluation, we will proceed with caution when deciding whether to tighten monetary policy further or instead hold rates constant and wait for more data,” Powell maintained, thus leaving all options open.
increased hardening
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Powell, in this sense, has warned that the drop in inflation core in June and July (up 4.7%) is not sufficient to find out if the decline will continue in the coming months or if it will stagnate. He has also highlighted that the GDP growth (0.5% in the first quarter and 0.6% in the second) is “above expectations and its long-term trend”, which the consumer spending this result “especially robust”and that real estate has begun to give recovery symptoms after falling precipitously for 18 months. “Additional evidence of a growth persistently above of the trend could put at risk due to progress in terms of inflation and justify further tightening of monetary policy”, he warned.
On the other side of the scale, the president of the FED has stressed that the rise in interest rates it takes several quarters in deploying all its effects, with which part of the same are yet to be noticed in activity and inflation. However, he has also insisted on the idea that bringing the CPI to the 2% target “will require a growing period economical by below holdingas well as true weakening of the conditions of the working market“(Unemployment is at 3.5%, in an area of historical lows). Likewise, he has confirmed – like Lagarde – that he will maintain the target at 2%.