All the next moves by the ECB and the Fed
How the ECB and the Fed will move. The comment by Pasquale Diana, AcomeA senior macro economist
The ECB's message from the June meeting is clearly dovish.
As expected, the ECB left interest rates unchanged and sent a message of continuity. The press release is, in fact, largely a copy of that of April.
The ECB continues to emphasize the flexibility of the Pepp and, very importantly, it expects the purchases of the Pepp to continue at a “significantly higher” pace compared to the first months of the year.
Are there any divisions in the Council? Yes, but they are contained (for now). Lagarde stressed that there was unanimous agreement on the release as a whole, but there was some disagreement on the pace of purchases.
This is not surprising, however. With an economy clearly improving, it is natural for differing views to emerge about when and how to remove monetary stimulus. What is important is that the ECB has in any case decided to extend the status quo and monetary policy therefore remains absolutely accommodating, as was expected after the latest comments from policymakers.
The new macro forecasts: growth and inflation on the rise, but no rush. The new macroeconomic forecasts clarify – if needed – why the ECB does not intend to contemplate less expansionary policies for now. GDP growth is forecast at 4.6% in 2021, 4.7% in 2022 and 2.1% (previously: 4%, 4.1%, 2.1%), and the risks are balanced, an improvement compared to March.
Inflation is revised up but remains well below the target. The new forecasts are 1.9% in 2021, 1.5% in 2022 and 1.4% in 2023 (previously: 1.5%, 1.2%, 1.4%). For core inflation, the ECB notes some improvements but only expects 1.1% in 2021, 1.3% in 2022 and 1.4% in 2023 (previously: 1%, 1.1%, 1, 3%).
In other words, despite near-zero rates and unprecedented liquidity expansion, the ECB continues to see core inflation well below the 2% target in the medium term.
During the press conference, President Lagarde stressed that the new forecasts bode well compared to the more modest ones in March.
The Central Bank continues to see an economy operating below potential and is not worried about pressures on the wage side, although there are more encouraging signs on the core inflation side.
Lagarde remained ambiguous about the timing of a Pepp exit, considering it "premature", and indicated that the Strategy Review will be concluded in the second half of 2021. On the "financial conditions", the ECB argues that it is impossible to focus on a single indicator. On the contrary, the Central Bank takes into consideration a number of variables.
Once again Lagarde has chosen to emphasize the differences between the economic cycle in the US and the Eurozone, which suggests that the ECB does not intend to launch signals of tapering before the Fed does.
The divergence continues and could widen. Room for a stronger dollar? Despite some signs of internal disagreement, it seems really difficult to hypothesize that the hawks of the ECB will have the upper hand in the coming months.
It seems more likely that the Fed will choose to send some timid signals in one of the next meetings in the direction of a reduction in purchases from 2022. This could help push US rates up and strengthen the dollar against the euro in the coming months. . Given the inflation forecasts in the Eurozone – improving but well below the target – the ECB would most likely thank you.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/tutte-le-prossime-mosse-di-bce-e-fed/ on Fri, 11 Jun 2021 06:36:07 +0000.