Both the EU and US central banks have signalled that interest rates won’t be raised just yet, despite inflation rates increasing significantly over the past year.
European Central Bank President Christine Lagarde said it is “very unlikely” interest rates will be raised next year.
Jerome Powell, US Federal Reserve chair said: “The time for lifting rates and beginning to remove accommodation will depend on the path of the economy. We think we can be patient. If a response is called for, we will not hesitate.”
Inflation is growing on both sides of the Atlantic, but Lagarde believes this is a temporary problem.
According to Bert Colijn a senior economist at ING, the ECB’s cautiousness is because Europe’s economy is recovering more slowly than in the US.
“We do expect the Federal Reserve in the US to increase interest rates over the course of the next year,” Colijn told Euronews. “For Europe, it looks like that might be somewhat too soon.”
“We heard Christine Lagarde only yesterday say that she did not expect that economic conditions would be such that interest rates would be increased over the course of next year and when the ECB comes out and says that so explicitly, then that is a good sign that, indeed, Europe will be somewhat later in terms of a first-rate hike compared to the United States.”
The US Fed also said it will start reducing the pace of its massive bond-buying programme this month, which was introduced to counter the effects of the pandemic.
The ECB’s own COVID-19 stimulus initiative — known as the Pandemic Emergency Purchase Programme — is due to end in March 2022.
But for Colijn, the big question now is whether some kind of bond-buying scheme will “continue throughout next year”.
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