‘Mrs. Lagarde, that’s how it is!’

Economists are “showing” the head of the ECB the path the Fed has decided to take, raising interest rates to beat inflation and rising prices.

The US Federal Reserve, the Fed, has taken the big step. It raised its interest rates for the first time in 22 years. And not by 0.25%, as was the usual tactic of increases until now, but by 0.50 basis points, in the range of 0.75% to 1.00%. It was not an easy decision, but extremely necessary and expected by the market and the state, which should perhaps “inspire” the leaders of the European Central Bank.

“The economy has gone through a lot”

The decision was made unanimously, said Jerome Powell, head of the Fed, in a press conference, citing the reasons for this step and announcing new interest rate hikes. It is important to reduce inflation if we are to have a lasting period of strong labor market conditions that benefit everyone. The labor market is extremely limited and inflation is very high, and today the Federal Open Market Committee has raised its policy rate by half a percentage point and expects the next increases to be appropriate. significant reduction in the size of our balance sheet “.

With these tools, the Fed hopes to help the US economy, which, like everyone else in the world, has been hit by multiple crises and the recent war in Ukraine. Jerome Powell is optimistic.

“No one thinks it’s simple”

“We have a good opportunity to restore price stability without a serious recession and without significantly higher unemployment,” he told reporters. “And I mentioned the reasons for that. So, I see a strong economy now. I see a very strong job market. Businesses can’t find the right people to hire. They can’t find them. So, usually in a recession we would have unemployment. Now we have excess demand, so there should be room to reduce this excess demand, without leaving people jobless… No one thinks it’s simple μας Our job is not to evaluate the chances of success, but to try to achieve “Our goals. Well, that’s what we do.”

Will the ECB follow this “aggressive” policy? There are currently no written samples to the contrary, although Isabel Schnabel, a member of its board, has hinted that such a possibility is possible from July. According to Otmar Lang, chief economist at Targobank, the Fed’s policy on combating rising prices and inflation is doing very well. “The ECB should take this as an example: Mrs Lagarde, this is how it is done.”

Irini Anastassopoulou / Reuters

Source: Deutsche Welle