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- ECB Forum Preview: Central banker panel key to identify alignment or divergence on interest rates
ECB Forum Preview: Central banker panel key to identify alignment or divergence on interest rates
- Central bank bosses to discuss monetary policy collectively in ECB forum.
- Divergence on recent monetary policy between Fed, ECB, BoE and BoJ makes the event particularly interesting.
- Jerome Powell vocabulary will be particularly scrutinized ahead of expected rate hike in July.
Jerome Powell, Chairman of the Federal Reserve System (Fed) and Christine Lagarde, European Central Bank (ECB) President, will be speaking at the 2023 ECB Forum on Central Banking at 13:30 GMT on Wednesday, June 28th.
Alongside Fed Chairman Powell, Bank of England Governor (BoE) Andrew Bailey and Bank of Japan (BoJ) Governor Kazuo Ueda will also be taking part at the same panel.
The Fed left its policy rate unchanged at the range of 5%-5.25% following the June policy meeting but left the door wide open for a return to a 25 basis points (bps) rate hike in July. The ECB raised key rates by 25 bps in June and Lagarde noted that it is very likely the case that the ECB will continue to hike rates in July. In an unexpected decision, the BoE lifted its policy rate by 50 bps to 5% in response to strong wage inflation and Consumer Price Index (CPI) figures recorded in May. Finally, the BoJ maintained its loose policy settings in June but experts think the BoJ could review its Yield Curve Control strategy as early as next month for a possible tweak later this year.
About Jerome Powell (via Federalreserve.gov)
"Jerome H. Powell first took office as Chair of the Board of Governors of the Federal Reserve System on February 5, 2018, for a four-year term. He was reappointed to the office and sworn in for a second four-year term on May 23, 2022. Mr. Powell also serves as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking body. Mr. Powell has served as a member of the Board of Governors since taking office on May 25, 2012, to fill an unexpired term. He was reappointed to the Board and sworn in on June 16, 2014, for a term ending January 31, 2028."
Fed FAQs
What does the Federal Reserve do, how does it impact the US Dollar?
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
How often does the Fed hold monetary policy meetings?
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
What is Quantitative Easing (QE) and how does it impact USD?
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
What is Quantitative Tightening (QT) and how does it impact the US Dollar?
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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