Bankers want to ‘brake’ growth to stop rising inflation – ECB officials suggest 75 basis points (0.75%) hike
The decisive shift to restrictive monetary policy now seems to be viewed as a one-way street by the world’s largest central banks, the US Federal Reserve and the ECB which despite the looming risk of recession are oriented towards new and possibly more aggressive interest rate hikes.
The US Federal Reserve is determined to fight inflation and will not deviate from its course but will continue to raise interest rates to prevent inflationary pressures from consolidating. He knows, however, that the battle against inflation, the highest the superpower has seen in decades, will have a heavy toll on the US economy and workers, and will not pay off immediately.
This was conveyed from the floor of its annual meeting Federal Reserve in Jackson Hole, Kansas City, the bank’s president, Jerome Powell, who emphasized that “the return to a stable price situation will take time and will require the decisive use of our tools to achieve a better balance between demand and supply.” He also stressed that “higher interest rates, lower growth rates and limited opportunities in the labor market will curb inflation but will also bring pain for households and businesses.” He refrained, however, from telling the markets what the pace of rate hikes might be in the near future.
The Fed began raising interest rates in March and has repeatedly hiked the cost of borrowing from near-zero levels to 2.25% to 2.5%. Its moves are at the center of interest among investors trying to gauge how aggressive the dollar’s rate hikes will be in the coming months’ meetings.
At the same time, ECB sources who spoke to Reuters on condition of anonymity stressed that some of the bank’s executives want to consider the possibility of raising interest rates. by 75 basis points in the September session. They cite the alarming acceleration of inflation and argue that aggressive rate hikes are needed despite the risk of recession. As Reuters points out, so far none of the ECB’s executives has openly advocated such a large increase in interest rates. The decisive moves by the Fed, however, which has already moved forward with a 75bp dollar interest rate hike, as well as the worrying developments on the Eurozone inflation front tend to make it necessary to discuss the possibility of such an aggressive move. “I don’t necessarily support the 75 bp increase. but I see no reason not to discuss it,” said one of the sources, who asked not to be named. And he clarified that “since the Fed did it, I don’t see any reason why we shouldn’t even put it on the discussion table.”
An increase in euro interest rates by 75 bp. is still considered unlikely given the resistance shown by the countries of the European South. However, the statements of these anonymous sources indicate that a 50 basis point increase in interest rates is almost certain. and furthermore that the trend that will prevail within the ECB will be towards restrictive policy.
moneyreview.gr
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