Bundesbank President Joachim Nagel emphasized the growing importance of determining future monetary policy steps on a meeting-to-meeting basis, taking into account economic and financial developments.
Meanwhile, he assured that the central bank will “continue to move forward resolutely on the path of monetary normalization until inflation is contained and price stability is restored.”
he pointed out that the cumulative 350 basis points in rate hikes since last July have yet to fully impact the economy. Given the persistently high inflation rates and the considerable distance from the 2% medium-term target, he suggested that it’s time for policymakers to expedite the reduction of the ECB’s bond holdings, which commenced this month.
“In my view, it can be accelerated from the summer,” Nagel said. “Markets will be able to handle it well, and in terms of monetary policy, it’s necessary to reduce the balance sheet of the Eurosystem more quickly.”
Fed Jefferson on balancing inflation and economic stability
Fed Philip Jefferson stated yesterday that the current inflation rate is too high, emphasizing the FOMC’s goal to reduce it to 2% as quickly as possible. Speaking at Washington and Lee University in Lexington, Virginia, he acknowledged that the process may take some time due to persistent inflation components such as services excluding housing.
Jefferson said, “I would like to say that inflation will return to 2% soon, but we have to do it in a way that does not damage the economy any more than is necessary. That’s what we are trying to do.” Fed is grappling with the challenge of ensuring price stability amid high inflation while also maintaining financial stability in the wake of the second-largest bank failure in US history.
In his speech, Jefferson also noted that although inflation has begun to decline, it remains unclear whether this decrease is due to higher interest rates, easing pandemic-induced supply strains, or falling energy prices.
He highlighted the uncertainty surrounding the full impact of the Fed’s tightening measures, saying, “Monetary policy affects the economy and inflation with long, variable, and highly uncertain lags, and we are still learning about the full effect of our tightening thus far.”