In the face of inflationary pressure, central banks are determined to act. What’s the problem? -03/22/2022 at 09:53

Central bank is determined to act

Central bank is determined to act

Conflict between Russia and Ukraine raises inflationary tensions

In this regard, the Ukrainian crisis adds uncertainty to the trajectory of normalization of monetary policy in the euro area, but has only limited impact on the Federal Reserve’s decision. Hmm. At the last Monetary Policy Committee, the central bank raised its inflation expectations significantly over the next three years. Inflation continued to be positively surprised as energy prices continued to rise and supply chain turmoil continued.

Despite the war in Ukraine, the European Central Bank (ECB) is determined to fulfill its price stability mission. However, due to the high degree of uncertainty, all options remain in the table. The ECB believes it has reached its inflation target. “The Board believes that inflation is more and more likely to stabilize at the medium-term target of 2%,” the ECB said in new data that the outlook for medium-term inflation will not diminish. If confirmed, we will enter into a net purchase under the Asset Purchase Program (APP) in the third quarter. The ECB wants to remain flexible in the timing of the first rate hike, hoping that major ECB interest rate changes will occur “someday” after the end of the net APP purchase, not “a little later”. I am. Our concerns relate to the termination of the asset purchase program and the market’s ability to absorb new debt securities without raising interest rates excessively. However, European Central Bank Governor Christine Lagarde said the ECB could act flexibly to maintain its financial position.

The Federal Reserve Board (FRB) is also determined to act to restore price stability. US Central Bank Governor Jerome Powell emphasized high levels of inflation in a solid macroeconomic situation where the labor market is very tight. J. Powell has shown that he wants tighter monetary policy and tighter fiscal conditions to delay aggregate demand and improve the balance between supply and demand. The Monetary Policy Committee (FOMC) has raised interest rates for the first time since 2018, and FOMC members are expected to raise interest rates six more times this year. Balance sheet shrinkage also plays an important role in monetary tightening. Powell said the Fed’s annual balance sheet decline could be about the same as a 25 basis point rate hike. Quantitative tightening may begin at the next meeting in May at the earliest. The problem facing investors is now about the US economy’s ability to absorb rate hikes. Jerome Powell has continued to emphasize that the US economy is in a good position to deal with tighter monetary policy. However, at the press conference, there were many questions about how the Commission would reduce inflation without significantly impacting growth or the labor market.

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