Central bankers in the world’s major economies on Wednesday hiked interest rates significantly, but said it was very likely that more hikes would be needed to bring inflation back under control given the strength of the labor market. rice field.
“The policy, while restrictive, may not be restrictive enough, and was not restrictive enough for a period of time,” said Federal Reserve Chairman Jerome H. Powell.
Speaking at the 10th European Central Bank Annual Meeting in Sintra, Portugal, Mr. Powell said a strong labor market “is driving the economy”, which is why Fed officials are expecting two more rate hikes this year. was the main reason for anticipating
Promoting U.S. workers and earning higher wages stimulates demand, which enables economic growth and gives businesses the ability to continually raise prices.
The Fed broke the record for 10 straight rate hikes this month by keeping rates unchanged in the 5% to 5.25% range. But Powell said Wednesday that the decision does not indicate the frequency of future moves. Skipping June may not mean the new normal of raising rates at every meeting.
“All we have decided is not to raise rates at the June meeting,” Powell said. “We have absolutely no intention of removing travel for back-to-back meetings from consideration.”
At the same panel discussion, European Central Bank President Christine Lagarde and Bank of England Governor Andrew Bailey also said tight labor markets in their economies were pushing up wages and increasing inflationary pressures.
“We still have room to cover,” Lagarde said, and the European Central Bank said: raised interest rates by a quarter of a percentage point in JuneIt was highly likely that another rate hike would take place in July.
Central bankers from all over the world, from Canada to South Africa, gathered in Sintra to discuss monetary policy amid global inflation. Inflation has slowed slightly in major economies such as the United States and Europe, but policymakers have spent most of their meetings winning a premature victory given the high degree of uncertainty stemming from uncertainty about some of the drivers of inflation. spent discussing the risks facing declarations. Energy markets are raising questions about how companies will respond to rising labor costs.
After more than a year of aggressive interest rate hikes in the US, UK and euro-using European countries, central bank actions have diverged significantly over the past month. The Fed kept rates on hold, the European Central Bank raised rates by a quarter of a percentage point to signal more interest rates to come, and the Bank of England unexpectedly raised interest rates by half a percentage point.
Bank of Japan The country remains an outlier and a very accommodative monetary policy stance even as inflation rises to its highest level in 40 years.
Kazuo Ueda was appointed governor of the Bank of Japan in April. Ueda, who also participated in the panel discussion, said that while the headline inflation rate is above 3%, Japanese officials believe the underlying measure of inflation is still slightly below the 2% target. said.
“Therefore, we will not change our policy,” he said.
Headline inflation has fallen in Europe and the US this year, but this has provided policymakers with limited comfort. While there are still strong signs of domestic inflationary pressures from rising wages in the service sector, the common challenge is how to reach the 2% inflation target.
Mr. Powell said the United States “still hasn’t made much progress” on inflation in labor-intensive service sectors such as hotels, restaurants and financial services. He added that officials “need to watch for further softening of labor market conditions.” He does not expect core inflation to fall to 2% by 2025.
Powell stressed that many officials at the June meeting expected “two or more” additional rate hikes in 2023.
Lagarde said on Wednesday that the euro zone “has not seen enough concrete evidence of stable and declining underlying inflation, especially domestic prices.” So policymakers want to make sure interest rates remain capped until inflation is sure to come down.
In Britain “that’s the crux, that’s the problem,” Bailey said. He added that “the situation is even stronger” as the labor market is tight, partly because the workforce is still smaller than it was before the pandemic.
Bailey said investors expected the bank to raise rates a few more times, but instead of denying or accepting those expectations, he just said, “Let’s wait and see.”
Measures of core inflation, excluding food and energy, and services inflation, which is heavily influenced by corporate wage costs, remain uncomfortably high. In the UK, core inflation rose to 7.1% last month, while it was 5.3% in the US and euro zone.
Frédéric Ducrozet, head of macroeconomic research at Pictet Wealth Management, said: “Despite the differences between the two countries, there is a common understanding that they are gearing up for the next phase of the inflation process. there is,” he said. Not much.
Policymakers are also looking at how quickly the effects of higher interest rates will ripple through their economies as a means of judging how effective monetary policy is. Bailey said the shift from variable to fixed-term mortgages in the UK has slowed the transmission of monetary policy. “History will not be a good guide,” he added.
Lagarde said similar but uneven changes were taking place in the eurozone.
The Bank for International Settlements recently warned that “last mile travel could become difficult” despite falling inflation.
Inflation could be more stubborn than expected as workers demand higher wages to make up for lost purchasing power over the past year or two. However, companies may choose to pass on that extra labor cost to their customers.
“Inflation could remain uncomfortably high under this scenario,” the bank said in its report.Mr Lagarde repeated concerns on tuesday.
Powell and Lagarde said inflation could be eradicated without triggering a recession, even as analysts increasingly believe their efforts will lead to a recession.
“Recessions are not included in our criteria,” Lagarde said. “But that’s part of the risk there.”
Gina Smirek Contributed to the report.