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Central bank leaders signal continued inflation battle

In an engaging dialogue at ECB forum, central bank leaders from across the globe hinted at the ongoing struggle against inflation, with an emphasis on the need for continued restrictive monetary policy.

Christine Lagarde, President of ECB, highlighted the necessity of sustained effort in the face of inflation, saying, “We still have more ground to cover.” She underlined the lack of “tangible evidence” that domestic prices, a key indicator of underlying inflation, were stabilizing and starting to fall.

Meanwhile, Fed Chair Jerome Powell echoed this sentiment, asserting that, despite the current restrictive stance, monetary policy “may not be restrictive enough and it has not been restrictive for long enough.” Leaving the door open for consecutive rate hikes, he said, “I wouldn’t take moving in consecutive meetings off the table at all.”

Andrew Bailey, Governor of BoE, justified last week’s significant 50 basis point rate hike, attributing it to the persistence of inflation and labor market pressures. He stated, “The cumulative data… caused us to conclude that we had to make really quite a strong move.”

On the other hand, Kazuo Ueda, Governor of BoJ, projected a temporary slowdown in inflation due to diminishing effects of past import price increases. However, he forecasted an inflation uptick into 2024, albeit admitting less confidence about this second phase. Ueda mentioned that confirmation of this second inflationary surge could be a “good reason to shift policy.”

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