And what will Lagarde do today? Pressure on ECB chief after U.S. rate hike slowdown

The Fed’s pause in rate hikes came yesterday less than 24 hours before ECB governors meet in Frankfurt this Thursday to decide whether or not to raise interest rates for the eighth time in a row. since July last year.

Both market expectations and public statements by the institution’s president, Christine Lagarde, and other Eurosystem governors point to the fact that. the ECB will raise rates by a further 0.25 percentage points.. This decision would raise the interest the ECB charges banks for depositing funds on its balance sheet to 3,5% and the main refinancing operations rate (the interest charged by the ECB to commercial banks for lending money to them for one week). at 4%.

The situation in the eurozone is somewhat different from that in the United States. To begin with, its interest rates are at substantially lower levels (3.5-4% vs. 5-5.25%) and inflation is two points higher in the euro countries as a whole compared to the United States.. However, it should be borne in mind that the ECB has to face other problems that the US does not, such as financial fragmentation (risk premiums may rise) and weaker economic growth forecasts.

United States puts the brakes on hikes

The Federal Reserve yesterday gave its prst respite to the U.S. economy in 15 months.. After chaining 10 consecutive meetings raising official dollar interest rates – which determine the interest on millions of loans around the world – the US central bank decided to take a break and keep the official price of money between 5 and 5.25%. As a result, interest rates in the United States are at their highest level in 17 years, in what has become the fastest rate hike cycle in the country’s history.

The monetary authority stuck to the script and met market expectations, which took the decision for granted. The continued improvement in inflation statistics in the United States has contributed to the Fed’s decision to pause. Price rises have eleven consecutive months of slowing in the country and in May, year-on-year inflation fell to 4% (as a point of comparison, in the Eurozone it still stands at 6.1%).

In this way, the Fed becomes the first of the major central banks to put rate hikes on hold. initiated in the middle of last year and paves the way for other monetary authorities to follow in its footsteps in the near future. The Fed’s decision will undoubtedly resonate in Frankfurt, where the European Central Bank (ECB) meets this Thursday to decide, predictably, on a further rate hike of 0.25 points.