The European Central Bank and the Federal Reserve will not follow the same monetary policy in the near future
With Eurozone inflation at an all-time high, the European Central Bank is forced to review its accommodative monetary policy. At a press conference on 14 April, the current President of the European Central Bank Christine Lagarde confirmed her plan to continue the gradual reduction of net bond purchases with the remaining Asset Purchase Programme (APP), a package of unconventional monetary policy measures. In detail, the purchases planned for April will amount to EUR 40 billion, in May they will be reduced to EUR 30 billion and in June they will amount to EUR 20 billion.
The spotlight is then shifted to the various measures adopted by the Federal Reserve, which is proceeding resolutely with a restrictive maneuver, showing a strong determination to raise rates and reduce the size of its balance sheet. There is thus a strong dissonance with the decisions taken by the ECB: the modus operandi adopted is clearly more cautious towards the “normalisation” of monetary policy. This process, initiated in December by the ECB Governing Council, adopts the following watchwords: “gradualness, optionality, and flexibility”. Gradual is in fact the response to the run-up in inflation, with an end to net APP purchases as early as the third quarter. Moreover, in order to prevent the definitive halt to QE (Quantitive Easing) from opening up the spread of yields between government bonds even further, Christine Lagarde wanted to give full emphasis to the concept of “flexibility”, considering it a fundamental aspect of the conduct of monetary policy. Strictly speaking, this variable is alive and well in order to guarantee a homogeneous transmission of monetary policy and avoid possible financial fragmentation; in fact, according to the forward guidance on interest rates, a rise in interest rates will only be possible at a time subsequent to the end of the securities purchase program, thus confirming interest rates on main refinancing operations at 0.00%, those on marginal refinancing operations at 0.25% and finally those on deposits with the Central Bank at -0.5%. Finally, given the high level of uncertainty, there remains a strong desire to adhere to the principle of “optionality” with regard to future moves, in order to ensure price stability and help preserve financial stability.
The President of the ECB during the last press conference in April reiterated: “Inflation has risen significantly and will remain high in the coming months, in particular, due to the sharp increase in energy costs”, therefore “we are ready to adjust all the instruments within our mandate, flexibly if necessary, to ensure that inflation stabilises at the 2% objective in the medium term”.
(Full text at www.ecb.europa.eu)
Source: http://www.borsaitaliana.it ; http://www.ecb.europa.eu
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