Fed, Bank of England and ECB test a less harsh monetary tightening – Corriere.it

Inflation bites a little less and the dreaded recession hasn’t arrived yet even though the Western economy is slowing down. There is a temptation to limit the rise in interest rates to try to avoid a decrease. For this Wednesday, the Fed could decide to increase only by 25 points, but a 50-point increase is still expected from both the Bank of England and the European Central Bank the next day. After the increase of a quarter of a point decided last week by the Bank of Canada as a conclusion to the tightening, increases by the major western central banks are expected in the next few days, also intertwined with the release of a series of important economic data such as, On Tuesday, GDP data from the Eurozone followed the just-released, better-than-expected data from the United States.

Triple date

The two-day meeting of the Federal Reserve, the Fomc, will end on Wednesday and several analysts are betting on a limited increase to 25 basis points, after four consecutive hikes by 75 basis points plus one by 50 basis points, while inflation data in slowdown, in the face of an economy that is slowing down, but continues to expand, pave the way for further moderation in the monetary tightening manoeuvre. On Thursday it will then be the turn of the Bank of England and the European Central Bank to announce their decisions on the cost of money. In both cases, however, the expectation is for rate increases of 50 basis points. But while inflation in Great Britain remains close to its peak, in the euro area it has also begun to show signs of easing. However, the view on the need to continue with the restrictive maneuver continues to seem prevalent to the Frankfurt institution, although the internal debate seems to be increasing in turn.

Forecasts

The economists of the Dutch bank ING expect that even after a new increase of half a percentage point on rates, the ECB will maintain an aggressive tone on the future dynamics of the increases. Beyond the forecasts of the Dutch bank, which often seems to share many of the arguments of the “hawks”, those who in the Council of the ECB push for a more intransigent line against inflation (raising rates is the main tool with which central banks try to curb the high cost of living), it should be noted that in recent weeks the discussions between the central bankers of the euro area seem to have intensified. As, moreover, was inevitable as rates enter ever more restrictive territory, therefore with adverse repercussions for economic growth and employment.

The occupation node

On the labor front, overall, the situation appears to be under control, but as regards the trend of GDP, even if there is not yet the dreaded decrease, the situation is more critical than in the United States. Also for this reason the “doves” who would like a softer line are raising their voices. However, the increase from 50 basis points now seems practically decided, even if a prudential turnaround at the last moment cannot be ruled out. However, a moderation of the grip dynamic for subsequent meetings could emerge. For this reason it will be important to “decipher” the words of the president of the ECB Christine Lagarde in the post-meeting explanatory press conference. Lagarde, on 23 December, speaking at the Frankfurt Stock Exchange, had reiterated the orientation to raise interest rates again “significantly and at a constant pace”, which in practical terms according to observers should mean at least two more consecutive increases of 50 basis points . However, on the very same day, the governor of the Bank of Italy, Ignazio Visco, who sits on the Governing Council of the ECB, called for greater progressivity, prudence and balance in risk assessment, precisely with respect to rate hikes. In all likelihood this means wanting to discuss in more depth what will be the move of the March meeting. And precisely in this sense, the following day Fabio Panetta, the Italian member of the Executive Committee of the ECB, which in turn participates in the Council, made it clear that the move in March will be discussed. On the other hand, on the side of the hawks, the president of the Bundesbank, Joachim Nagel, warned that “the work against inflation is not finished”. The scenario of a debate that is heating up within the ECB directorate also emerged from the December Council minutes, published by the ECB on 19 January.