The last decisions of European Central Bank (ECB) and of the Federal Reserve (Fed) of the United States reflect, according to experts, the divergences of both institutions in what they interpret as the final stretch of the tightening of their monetary policies to subdue inflation.
The ECB executed its fifth rate hike (half a point) in six months this Thursday to place them at 3%, while the Federal Reserve did the same the day before, but opted for a softer increase, a quarter of a point, until taking them to a range between 4.5 and 4.75%, its highest level since September 2007 and the eighth consecutive increase.
The objective of both central banks is the same: to break their high inflation to 2%. In the case of the euro area, year-on-year inflation stood at 8.5% this January, according to advance data, and in the United States, at 6.5% at the end of the year.
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There’s a “clear message that monetary tightening continues, although perhaps it will be a little less harsh than the previous one”explained Alfredo Jiménez, from the Spanish Institute of Analysts, in a comment.
However, the president of the ECB, Christine Lagarde, specified during her press conference this Thursday in Frankfurt (Germany) that the Governing Council of the institution intends to raise another half a percentage point in March, while leaving foresee new increases in the coming months.
For Ben Laidler, from the multi-asset investment platform eToro, “the ECB is clearly aiming for a further 0.50 point rise in March, which sets it apart from other central banks around the world, which are slowing down their battle against inflation”.
The European institution began to raise rates later than the Fed and has done so to a lesser extent, in addition to the fact that average inflation in the euro area is higher than that of the United States and its “economy is surprisingly resilient”added the expert.
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He also explains in a note to investors that European economic growth has in its favor the decline in natural gas prices, public spending and the growth of exports, in addition to benefiting from the economic reopening of China.
Laidler, who says that this firm position has made “the ECB is the new sheriff of the city”considers that the institution that Lagarde directs is on the path of a rise of 50 basis points in the meetings of March and May, before reaching a maximum at the end of the year.
The US Federal Reserve seems to be in a position that can be glimpsed as less aggressive than that of the ECB, which this Wednesday decided to move away from previous increases of 75 and 50 basis points, and opt for the quarter point, now that inflation is beginning to rise. give signal cooling.
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In the opinion of Christian Scherrmann, economist at the asset management company DWS, the Fed opted for a moderate increase to give time and see the effect of previous aggressive increases.
“It is normally considered that rate hikes need between three and four quarters to fully show their effect on the economy”said the expert, who indicated that this option wins positions in the Fed.
The explanation is that “Labor markets remain remarkably resilient nine months into this rate hike cycle and could imply a ‘wait and see’ attitude shortly.”
The president of the Federal Reserve, Jerome Powell, referred precisely in his press conference on Wednesday to the fact that in the US there is a “extremely tight job market” that “still unbalanced”.
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He added that inflation is still in a very high range and that this justifies maintaining a restrictive monetary policy for some time, while hinting at a “possible end of the cycle of increases by reaffirming the prospects for December on a terminal rate slightly above 5%”estimated the DWS expert.
For Laura Frost, Director of Investments at fund manager M&G Public Fixed Income Team, “It is clear that the Fed is focused on inflation, but it is the most dovish decision we have seen from 2029-2019″.
The movements of the ECB and the Fed have been followed by that of the Bank of England, which today also raised its interest rates by half a point, leaving it at 4%.
Ricardo is a renowned author and journalist, known for his exceptional writing on top-news stories. He currently works as a writer at the 247 News Agency, where he is known for his ability to deliver breaking news and insightful analysis on the most pressing issues of the day.