In general, her reaction European Central Bank in increase in inflation over the past year or so it has matched that of the US central bank (Fed). It began, several months late, to raise interest rates sharply, by a total of 4.5 percentage points from July 2022 to last Thursday. H Fed has raised its key interest rate by 5.25 percentage points across the board, but started monetary tightening four months earlier than the ECB.

The Fed halted its rate hike last June, only to return with another hike in July. Next Wednesday, when it meets again, it is expected to keep its key interest rate steady in the range between 5.25% and 5.5%, but it is possible to return with another increase by the end of the year. The ECB signaled yesterday that it was unlikely to raise interest rates at its next meeting, but left open the possibility of doing so later, depending on the latest economic data.

Specifically, through a diplomatic wording, he said that, based on today’s data and inflation forecasts, keeping interest rates at Thursday’s levels for a long time would contribute significantly to the achievement of the inflation target. But because data and forecasts are changing, Christine Lagarde clarified that the ECB is not saying that interest rates have reached their highest level. For the same reason, he noted, it cannot be said for how long interest rates should remain high.

If these are the similarities, there is one important difference in the macroeconomic environment of the Eurozone and the US, which makes the ECB’s monetary policy more painful. Unlike America, where GDP is still growing at an unexpectedly high rate this year, close to 2%, the Eurozone economy remains essentially stagnant from the fourth quarter of 2022 and, according to the latest ECB forecasts, this is expected to continue until at least the end of 2023. The previous forecast for recovery was not confirmed, Lagarde admitted. In such an environment, every increase in interest rates is another “nail” in the body of the economy that can even push it into recession. This was, after all, the argument of the members of the Board of Directors. of the ECB who disagreed with the interest rate hike.

Lagarde acknowledged this situation, speaking of a difficult period, but noted that interest rate hikes needed to continue to reduce inflation, which is particularly hard on the weaker economic strata. The ECB revised upward its forecast for average inflation this year and 2024 to 5.6% and 3.2% from 5.4% and 3%, respectively. This move is due to the recent increase in fuel prices, with ECB officials forecasting a 10% increase in oil prices compared to the previous June forecast. Prices for natural gas were revised slightly upwards, while wholesale prices for electricity were revised downwards.

Inflation in the Eurozone is expected to approach the 2% target only in 2025, according to the same forecasts. The Fed is closer to its 2% target as inflation was running at an annual rate of 3.7% in August compared to 5.3% in the Eurozone.