ECB executive board member Schnabel has contended that the notion of a long – term divergence in the policies of the Federal Reserve and the European Central Bank is inaccurate.
Impact of the Trade War and Policy Outlook
“I expect the trade war to have an impact on both global demand and supply – we can discuss which of these two factors has a greater effect on inflation, as this will determine the final net impact,” Schnabel stated on Saturday. Speaking at the 31st Dubrovnik Economic Conference, she added, “However, in any case, I expect that such a situation of sustained decoupling will not occur. The market pricing also reflects this.”
Past and Current Policy Actions
During the periods of accelerating inflation in 2021 and 2022, both the European Central Bank and the Federal Reserve raised interest rates in tandem. In 2024, they both initiated interest rate cuts. However, there has been a difference in the pace of their actions since then. The European Central Bank has carried out eight rate – cutting measures (the most recent one on Thursday), reducing the interest rate from 4% to 2%. In contrast, the Federal Reserve has remained on hold since December 2024, maintaining the federal funds rate within the range of 4.25% – 4.5%.
Upcoming Fed Meeting and Expectations
Fed officials are set to convene in Washington from June 17th to 18th. It is widely anticipated that they will keep the benchmark interest rate unchanged. Many of the central bank’s policymakers have indicated that they prefer to wait until the impact of President Donald Trump’s trade, immigration, and tax policies on the economy becomes more apparent before making any adjustments to the interest rate.
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