Lagarde: The effects of war are very different in the US and Europe

The two largest central banks in the world will be disconnected in the near future as the war in Ukraine has very different effects on their economies, ECB President Christine Lagarde said on Monday.

The US Federal Reserve raised interest rates on previous aid shortly after the ECB said it was in no hurry to raise low interest rates while continuing to ease emergency support measures.

“The two economies are in a different position in the economic cycle, even before the war in Ukraine,” Lagarde told a news conference.

“For geographical reasons, Europe is much more exposed (to war) than the United States.”

Rising energy costs have already pushed eurozone inflation to a high of 5.9% last month and could reach 7% in the coming months, well above the ECB’s 2%.

With food prices also rising, rising inflation will further reduce household purchasing power and the ECB has cut growth estimates, with some policymakers arguing that an even worse outcome is already more likely.

Lagarde stressed that the US economy is less dependent on the European one in terms of commodity imports, and its trade will also be less affected, so the two central banks will need to make autonomous moves.

“Our monetary policies will not move at exactly the same pace,” he said.

As a result of the war, Europe will need to speed up the process of turning its economy green to reduce its energy dependence on Russia.

The transition will be inflationary in the short to medium term, Lagarde warned, although the long-term impact of the transition will be to burden prices.

In the short to medium term, it will be inflationary. “While in the long run, price forces will be rather deflated,” she said.