Europe’s chief economist Jari Stehn on rising inflation

Mhe meeting of the central bankers in Jackson Hole, USA, is being watched tense on the financial markets. Jerome Powell, the head of the US Federal Reserve, wants to give his assessment of the situation in the United States. This could provide new indications of how different the monetary policy of the central banks in America and Europe is likely to develop from now on – with considerable effects on the financial markets as well. “It is now clear: America will get out of the ultra-loose monetary policy faster than Europe,” said Jari Stehn, European chief economist at the investment bank Goldman Sachs, in an interview with the FAZ The European Central Bank, on the other hand, is unlikely to raise its key interest rates until 2025 at the earliest.

The Fed will also stop its bond purchases faster than the ECB, says Stehn. “We expect the Fed to decide in November to start tapering, that is, to exit from bond purchases.” In December, it will be so far that the central bank will buy fewer securities. Bond purchases in America are likely to stop at the end of the third quarter of next year – in Europe, on the other hand, the ECB will continue its corona crisis program PEPP until at least March next year and will continue to purchase securities with the longer-term purchase program APP until mid-2023.

Three options for the ECB

The Goldman economist thinks that the first steps in America would not yet put the ECB under pressure. “For the ECB, it is irrelevant if America marches ahead of time when it comes to exiting its loose monetary policy,” says Stehn. “Europe entered the corona crisis with a lower capacity utilization – and the United States is already further in the economic cycle.”

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At least Goldman expects ECB President Christine Lagarde to reduce the pace of her bond purchases soon. “We expect that the ECB will slow down the pace of its bond purchases under the PEPP crisis program in the fourth quarter of this year.”



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