Fed, ECB, BoE and BoJ Heads Weigh in

ECB Forum on Central Banking 2023 Summary

• Powell Repeats the need to slow down the pace and volume of tightening of the climax that appears close
• Lagarde of the European Central Bank He shrugs off any idea of ​​a pause, seeing a spike in July as the likely outcome
• Bailey of the Bank of England He sees inflation falling despite a more flexible economy and job market
• BoJ Ueda It states that confidence in persistent inflation will test easy monetary policy
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Powell reiterates the need to slow the pace of tightening and volume as prices approach peaks

Federal Reserve Chairman Jerome Powell took part in a panel discussion along with the heads of the Bank of England, European Central Bank and Bank of Japan where getting fresh information proved difficult despite the best efforts of the panellist.

Powell detailed the thinking behind the recent FOMC meeting where a large number of Fed officials were in favor of seeing the average federal funds rate at 5.6% despite an apparent slowdown in the pace of increases. At one point, the Fed made four 75 basis point hikes in a row before slowing the tempo to 50, then 25. The decision to skip the hike in June does not necessarily mean a rate hike at every other meeting as Powell stated he could not rule out the rate. in successive meetings from here on.

The tight labor market continues to drive interest rates more restrictive and Powell noted that the contraction in the labor market has been seen but has been slower than expected. Ultimately, Powell expressed that the policy is restrictive but that there will be more tightening until the policy is seen as restrictive enough to bring inflation down to the 2% target.

The dollar (the basket of US dollars) rallied during the notes along with the S&P 500, but markets seem to be giving back much of those early gains in the wake of the discussion. Keep an eye out for the US banks’ stress tests update (21:30 UK time) and how this could affect US assets, especially banking sector indices.

5-minute chart of the US dollar basket

Source: TradingView, prepared by Richard Snow

ECB’s Lagarde brushes off any notion of stalling, seeing a rally in July as the likely outcome

ECB President Christine Lagarde admits there is still ground to cover and sees another rally in July if the fundamental outlook holds. Lagarde also noted the not so good economic data in Europe at the moment but brushed off suggestions of a recession. Instead, the ECB chief noted that growth in the first quarter was flat but admitted that economic growth has stagnated. In support of that assessment, she pointed to uninspiring second-quarter data for the manufacturing sector.

EUR/USD fell during the discussion session but the common observation of a partial correction of the initial move holds true for EUR/USD as well.

EUR/USD 5-minute chart

Source: TradingView, prepared by Richard Snow

Bank of England Governor Bailey sees inflation falling despite a more resilient economy

BoE Governor Andrew Bailey expanded on why the committee decided to go ahead with a surprise 50bp hike as inflation showed flat in the latest core and headline inflation measures. The UK finds it more difficult to control inflation than the European Union and the United States, something Bailey said is due to labor market dynamics. The UK workforce has yet to recover to pre-pandemic levels as labor shortages continue to support wage increases as companies are more and more reluctant to let go.

The pound weakened before the discussion session and actually gained some losses in the moments that followed.

EUR/GBP 5 minute chart

Source: TradingView, prepared by Richard Snow

BoJ Governor Ueda stood out because the BoJ was synonymous with ultra-easy monetary policy – unlike other committee members although he specified that if the Bank was confident that the medium-term inflation outlook would see price pressures rise, that would be the likely causes. to change the policy.

Then this week we have Germany and EU inflation data for June, final US and UK GDP numbers for the first quarter of the year, Chinese manufacturing data and core PCE sources.

– Posted by Richard Snow for DailyFX.com

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