The ECB follows the path of the Federal Reserve and bets on a sharp rise in rates

by time news

Representatives of European Central Bank (ECB) they defended this Saturday a strong increase in interest rate in September to combat increasingly rampant inflation. With this position, the ECB joined the path marked the day before by the president of the Federal Reserve (Fed) of the United States, Jerome Powellwhich opened the door to a third consecutive rise of three-quarters of a point.

The ECB raised rates by 0.5% to zero at the end of July – the first hike in 11 years – and is now expected to similar or even more important movement on September 8, partly because of high inflation and partly because the US Federal Reserve is also moving in some unusually large steps.

During a meeting at the annual Jackson Hole Economic Symposium of the Fed, the ECB adviser Isabel Schnabelthe governor of the Central Bank of France, Francois Villeroy de Galhauand that of the Central Bank of Latvia, Martin Kazak, they advocated forceful or significant action.

“Both the probability and the cost of today’s high inflation taking root in expectations are uncomfortably high,” Schnabel said. “In this environment, central banks must act strongly.”

0.75% rise

Markets were betting on a 50 basis point move on Sept. 8 until just a few days ago, but a slew of lawmakers, speaking on the record and off the record, are now arguing that a 0.75% hike should also be considered .

“The early distribution of rate hikes is a reasonable policy option,” Kazaks told Reuters. “We should be open to discussing both 50 and 75 basis points as possible moves. From the current perspective, they should be at least 50».

The three bankers also argued that the rate hike will have to continue.

With rates at zero, the ECB is stimulating the economy and staying far from the neutral rate, which economists estimate to be around 1.5%. Villeroy said that the neutral rate should be reached before the end of the year, while Kazaks assured that it would be reached in the first quarter of next year. “From my point of view, we could be there before the end of the year, after another significant step in September,” said Villeroy.

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