The most senior officials of the American, European and British central banks showed, from June 27 to 29, at the Forum of the European Central Bank (ECB), in Sintra, in Portugal, their common will to fight against inflation.
Le Financial Times emphasizes the unity of views, noting that “The world’s leading central bankers have warned that the era of low interest rates and moderate inflation is over”. The fault lies with the pandemic and the “massive geopolitical shock” what constitutes the invasion of Ukraine by Russia, according to Christine Lagarde, the President of the ECB. With Jerome Powell, Chairman of the Federal Reserve (Fed) of the United States, and Andrew Bailey, Governor of the Bank of England, they “called for swift action to reduce inflation”, summarizes the British business daily.
Pour Bloomberg, “the heads of the central banks of the United States and the euro zone have shared their doubts about the return to low inflation before the Covid-19, a situation which pushes them to seek solutions”. While Jerome Powell pointed out that the pandemic had tipped the world into a new era, Christine Lagarde acknowledged “that she didn’t think ‘that we will return to this low inflation environment’”, notes the US economic agency.
At the risk of a recession
Le Wall Street Journal, he is above all interested in the American situation, by titling: “For Powell, the Fed must accept a higher risk of recession to fight inflation”. As the United States experiences an inflationary surge not seen in decades, Jerome Powell “said he was more concerned about the risk of failing to eradicate high inflation than about the possibility of raising interest rates too high and plunging the economy into recession.”
The rise in the Fed’s key rates is taking place “at the fastest pace since the 1980s”, recalls the American daily. Economists fear the inflationary spiral where the consumer psychology participates in an anticipation of the rise in prices, which ends up materializing… and which would force the Fed to raise its rates further.
The job of a central bank, explains Jerome Powell, is to “prevent tipping into a higher inflation system”, consequence of “the multiplicity of shocks”. Its European counterparts “indicated they would proceed more cautiously than the Fed in raising interest rates,” notes the American daily. Christine Lagarde said:
“Taking action gradually is certainly appropriate in times of great uncertainty.”
Inflation reached 8.1% in the euro zone in May on an annual basis, 8.6% in the United States and 9.1% in the United Kingdom.