More rate hikes to come, say foreign central bank heads – 06/28/2023 – Market

The leaders of the world’s main central banks reaffirmed this Wednesday (28) that they see the need for further tightening of monetary policy to tame high inflation, but still believe they can achieve this without triggering recessions.

Fed (Federal Reserve) President Jerome Powell has not ruled out further increases in consecutive US central bank meetings, while ECB (European Central Bank) President Christine Lagarde has confirmed expectations that the bank will raise rates. in July, saying such a move is “likely”.

“Monetary policy has not been tight enough for long enough,” Powell told an annual meeting of central bankers hosted by the ECB in Sintra, Portugal.

“I wouldn’t rule out moves on back-to-back meetings at all,” he said. The Fed’s next Federal Open Market Committee meeting to set interest rates is scheduled for July 25-26.

Powell said the US job market, in particular, needs to soften further to ease pressure on prices. While he acknowledged a “significant likelihood” that this could lead to a recession, he said it was “not the most likely scenario”.

Lagarde said it was possible that the euro zone’s stagnant economy could slip into a full-blown recession this year, but emphasized that this was not the ECB’s basic expectation.

“We still have more ground to cover,” she said of the fight against inflation. “We are not seeing enough tangible evidence of the fact that underlying inflation, particularly domestic prices, is stabilizing and falling,” he said.

Bank of England Governor Andrew Bailey told the same panel that last week’s unexpected 50 basis point rise in the UK interest rate reflected a resilient economy and persistent inflation, adding that the Bank of England currently does not foresee a recession.

On the future monetary policy move to reduce the UK’s inflation rate, which is the highest among wealthy Group of Seven nations, Bailey said: “We will do whatever it takes.”

Bank of Japan Governor Kazuo Ueda had a markedly different message on the panel, saying the Japanese central bank would see good reason to change from its relatively looser monetary policy if it became “reasonably certain” that inflation will pick up in 2024 after a period of moderation.

Although inflation is above 3%, the Bank of Japan is keeping monetary policy loose as underlying inflation remains below its 2% target, Ueda said.