Central Bankers Predict Further Interest Rate Rises
At the annual ECB forum, central bankers discussed the need for policy tightening to combat stubborn inflation. However, some expressed optimism about their ability to keep interest rates high without causing a recession.
Key Points:
- Representatives from the European Central Bank, Federal Reserve, Bank of Japan, and Bank of England attended the event.
- Central bankers share a common goal of dealing with rising prices after the war in Ukraine and the economic reopening post-COVID.
- Jerome Powell of the Federal Reserve believes policy hasn’t been restrictive enough for long enough, but a recession is not the most likely scenario.
- Christine Lagarde of the ECB recognizes the risk of a European recession but does not consider it the baseline expectation.
- The Bank of England admitted that its forecasts had become unworkable and announced an external review of its forecasting.
- The BOE raised interest rates to 5%, the highest in 15 years, but doesn’t predict a recession for the UK.
- Bank of Japan Governor Kazuo Ueda wants to see sustained and significant inflation before making any policy changes despite Japanese inflation being above 3%.
Hot Take:
Central bankers are grappling with the challenge of rising inflation and the need to tighten policies without causing a recession. While some express optimism, others emphasize the importance of sustained inflation before making changes. The current crisis is the biggest inflation shock in decades, and central banks are closely monitoring the situation.
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