Signs of caution are coming from the Fed. The monetary tightening by the American Central Bank, long awaited by the markets, risks being postponed due to the latest data on inflation, which is still too weak. And this could lead the ECB to do the same, to avoid an excessive strengthening of the euro against the dollar.
The Federal Reserve plans another hike in the cost of borrowing by the end of 2017, the third this year after those of March and June, but the consumer price index not growing at the pace of 2% for the past five years he has been complicating plans. In July, core inflation (that is, excluding volatile components such as food and energy) increased by 1,4% year-on-year and by just 0,1% month-on-month. For this reason, the market is ruling out the possibility of the Fed announcing a rate hike at its meeting on 19 and 20 September and is skeptical about the possibility of a tightening by December.
According to Neel Kashkari, president of the Federal Reserve of Minneapolis and voting member of the FOMC (the Federal Open Market Committee, the monetary policy arm of the US central institute), in these conditions a rate hike could cause "real damage" to the economy .
Lael Brainard, also a voting member of the FOMC, said she was concerned by the latest price data, which could be linked to weak underlying inflation, perhaps even more so than observed before the financial crisis. In that case, it would be "prudent" to raise rates "more gradually," Brainard said in a speech in New York.
"It is advisable to proceed with caution on any further tightening of monetary policy - he added - until we are sure that inflation is really reaching our 2% target".
Further indications will arrive today with the publication of the beige book, which will provide new data on the trend of the American economy.
Tomorrow, however, the Governing Council of the ECB will meet in Frankfurt. For months now, the market has been waiting for President Mario Draghi to clarify the tapering roadmap, the process of gradual normalization of monetary policy. The securities purchase program by Eurotower (quantitative easing) should end at the end of the year, but according to UBS analysts it will be extended by a few months, albeit at a slower pace: 40 billion a month from the current 60. After all, next year many of the securities that can be purchased by the ECB will run out on the market, so Draghi will be forced to correct his course.
At the moment, however, the indications coming from the Fed advise caution. Not only because even in the Eurozone the recovery of inflation is still far from the ECB target – which aims for a level “below but close” to 2 percent – and the price trend is still too uncertain in many countries. But above all because reducing Qe while the Federal Reserve remains at a standstill would mean further fueling the race for the euro, which – driven by the crisis between the US and North Korea – is already approaching 1,20 against the dollar, the maximum for two and a half years. And a currency that is too strong risks nipping in the bud any signs of economic recovery coming from the Eurozone.
