Bank execs comment on rate decisions

The Chairman of the Federal Reserve Bank, Jerome Powell, participated in a panel discussion alongside the heads of the Bank of England (BoE), European Central Bank (ECB), and Bank of Japan (BoJ). Despite the interviewer’s best efforts, the panel did not reveal much new information. Powell explained the rationale behind the last Federal Open Market Committee (FOMC) meeting, where a majority of Fed officials favoured a median Fed funds rate of 5.6%. Although the pace of rate hikes has slowed, Powell did not rule out consecutive rate hikes in the future.

Powell acknowledged the tight labour market and noted that the softening in the labour market had been slower than expected. He emphasised that policy is currently restrictive, but further tightening is expected until it is deemed sufficiently restrictive to bring inflation down to the target of 2%. The remarks led to a rise in the US Dollar and the S&P 500 initially, but markets subsequently retraced a significant portion of those gains.

ECB President Christine Lagarde admitted that there is still progress to be made and suggested the possibility of another rate hike in July, depending on baseline projections. Lagarde acknowledged the unimpressive economic data in Europe and referred to the stagnation of economic growth, particularly in the manufacturing sector. The EUR/USD fell during the panel discussion but partially retraced its initial move.

Bank of England Governor Andrew Bailey explained the committee’s decision to implement a surprising 50 basis points hike, citing persistent inflation in both core and headline measures. The UK has faced challenges in controlling inflation compared to the European Union and the United States, attributed to labour market dynamics. The UK labour force has not fully recovered to pre-pandemic levels, leading to labour supply shortages and supporting wage increases. The pound weakened before the panel discussion but regained some lost ground afterward.

The Bank of Japan Governor, Haruhiko Kuroda, stood out among the panelists due to the Bank’s long-standing ultra-easy monetary policy. However, Kuroda mentioned the possibility of a policy change if medium-term inflation forecasts indicate rising price pressures. Key economic data to watch for this week includes German and EU inflation data for June, final Q1 GDP figures for the US and UK, Chinese manufacturing data, and core PCE.