FRANKFURT, Germany (AP) – The European Central Bank pushed for another rate hike on Thursday, revealing further rate hikes were on the way to quell inflation pushing up food prices. Even after the US Federal Reserve paused its series of rate hikes.
The quarter-point hike to 3.5% will be the eighth consecutive increase since July 2022 for the 20 countries that use the euro currency. It is an unprecedented and swift campaign to tighten the flow of credit to the economy as the central bank seeks to return inflation to its 2% target from 6.1%..
ECB President Christine Lagarde said further rate hikes were under consideration, including at the next meeting on July 27. The ECB’s outlook acknowledges that it will take several more months to bring inflation under control, even after interest rates have fallen from their double-digit peaks late last year.
“Are we done yet? Have we finished our journey? No, we have not reached our destination,” she said at a press conference. “Are there still areas to cover? Yes, there are areas to cover.”
Lagarde said the central bank “will continue to raise rates at its next meeting.” So, you know, we’re not thinking about suspension. ”
Central banks around the world are grappling with rising prices that are straining households and businesses with high bills for groceries and other basic necessities. But some people are starting to decide differently to avoid further jeopardizing the economy.
US Federal Reserve suspends rate hikes Wednesday will assess the impact of higher interest rates on economic growth and employment. It takes months for rate hikes to hit the economy, but a moratorium on rate hikes could be an opportunity to see if the medicine is working.
Nonetheless, Fed forecasts point to two more rate hikes It is possible this year.central bank of australia And last week Canada resumed a moratorium on rate hikes, a sign of how high inflation has permeated the global economy.
In Europe, Lagarde said rising interest rates were “gradually impacting the economy as a whole”, adding that risks such as Russia’s war with Ukraine made the outlook for inflation and growth “very uncertain”. Payment arrangements that could exacerbate inflation.
“Economic growth is expected to remain weak in the short term, but should strengthen later in the year as inflation continues to decline and supply disruptions continue to ease,” he said.
Rising interest rates counter inflation by raising borrowing costs Demand for auto loans, mortgages, and credit cards will fall and prices will rise. But they can also weaken the economy and increase the risk of it slipping into recession..
That’s a concern in Europe, where the economy has contracted slightly It will take place in the last months of 2022 and the first three months of this year. Two consecutive quarters of declining production is one definition of a recession.
But the job market is doing very well, with the unemployment rate at 6.5%, the lowest since the introduction of the euro currency in 1999, hardly matching a real recession.
The Eurozone Business Cycle Dating Commission uses employment and economic growth data in determining when a recession has occurred, but the last assessment on March 27 showed no recession. We plan to revisit this issue in November.
Carsten Brzeski, global head of macro at ING Bank, said the ECB “has an increasing risk of deteriorating the economic outlook”.
“The ECB cannot be wrong about inflation, despite valid arguments against further rate hikes,” he said in a research note. “Banks want to make sure they have beaten the inflation dragon before they consider policy changes, and they have to.”
Consumer prices began to rise as the global economy recovered from the COVID-19 pandemic and created supply chain bottlenecks.Soaring oil and natural gas prices Following Russian threats to Ukraine and the February 2022 invasion of Ukraine.This led to higher food and fertilizer prices. Both countries are running out of supplies from conflict-affected countries, which are major agricultural exporters.
Those pressures are starting to easeBut despite falling energy prices in Europe in recent months, the first burst of inflation is reflected in rising wage demand and service prices.
“Labor and wages in particular play an important role as drivers of inflation,” Lagarde said.
