The United States has announced that it will start reducing its massive bond purchases this month. This mechanism was introduced to counter the effects of the pandemic, but today, with the economy recovering, the US Federal Reserve (Fed) believes that this program is no longer necessary.Will Europe follow suit?
The US Federal Reserve now faces the delicate task of phasing out its ultra-low policy rates. “The timing of raising rates and starting to phase out will depend on the economic trajectory. We think we can be patient, but if an answer is needed, we will, we will not hesitate“, explains Jerome Powell, chairman of the US Federal Reserve.
On the other hand, for its part, the European Central Bank (ECB) declares “very unlikely” an interest rate hike next year. If inflation increases on both sides of the Atlantic, the president of the monetary institution, Christine Lagarde, believes that this is a temporary problem. And according to some experts, Europe’s caution is explained by the fact that the economy is recovering more slowly than in the United States.
“We expect the US Federal Reserve to raise interest rates over the next year. For Europe, it seems to be a bit too early. We heard Christine Lagarde say just yesterday that she did not expect economic conditions to be such that raising rates would be necessary next year. And when the ECB also says so explicitly, it is a good indicator to say that Europe will take longer than the United States to revise rates upwards.“, details Bert Colijn, economist at ING
The European Central Bank’s Covid stimulus initiative – known as the Pandemic Emergency Purchasing Program – is due to end in March 2022. But for analysts, the big question now is whether some purchases of ‘obligations, outside this mechanism, will continue throughout next year.
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