At the ECB Forum on Central Banking in Sintra, Portugal on June 28th, Federal Reserve Chair Jerome Powell, European Central Bank President Christine Lagarde, and Bank of England Governor Andrew Bailey all indicated that they still have a long way to go in curbing high inflation (bringing inflation down to the 2% target) despite concerns about significant economic recession caused by interest rate hikes.
Furthermore, during the forum, the Fed Chair also concurred with Christine Lagarde’s viewpoint. Additionally, Fed officials revealed their expectation of at least two more interest rate hikes this year. It is worth noting that prior to this, the Fed had already raised interest rates for three consecutive quarters starting from March 2022, only pausing in June to assess the impact.
In contrast to the viewpoints of global central bank “bigwigs,” the Governor of the Bank of Japan (BOJ), Kazuo Ueda, emphasized that Japan would maintain its negative interest rates due to the projected core inflation remaining below 2% in the fiscal year ending in March 2024. However, he also stated that their stance could change if the BOJ becomes more certain that core inflation will exceed 2% next year.
On June 30th, the US will release the Personal Consumption Expenditures (PCE) index for May, which is the Fed’s preferred inflation measure. Chairman Powell stated that it won’t be until 2025 at the earliest that the US will see core inflation reaching 2%. He expressed concerns that prolonged inflation poses greater risks to the economy.
Both Powell and Bailey are currently focusing on tightening the domestic job market. They see it as both a strength of the economy and a potential source of inflation. It’s worth noting that Jerome Powell has acknowledged that Fed actions can potentially lead to a recession, although it’s not the most likely scenario.
Other leaders are also exercising caution. The Bank of England (BOE) does not forecast a recession for the UK but affirms that it is “monitoring the situation closely.”