Last Thursday, as expected, the European Central Bank raised interest rates again, 25 basis points, bringing the official price of money to 4.25%. He came to the novena, like the masses, to ask for some intercession in the face of a great problem. The Federal Reserve of the United States did the same a day before, up to 5.25%, although on the other side of the Atlantic the number of increases has been greater.
This increase in interest rates by the ECB and the Federal Reserve, which have taken them to their highest in the last two decades, shows, above all, that the battle with inflation has not yet been won. In the case of the euro, the monetary institution itself considers that underlying inflation will remain significantly high until 2025. This forces it to continue with the restrictive measures for a while longer, at least, to prevent inflation from skyrocketing again. It cannot be forgotten that wages are growing remarkably in many countries under the ECB's mandate. In the United States, the GDP and employment data put recession away despite the intense rise in interest rates in the last year and a half.
However, believing in this context that the price of money will remain at those high levels for a long time is as daring as having previously kept them below zero for excessively long periods of time. If there are problems with the economy, now the big central banks have a way down. As Raphael would say, in the monetary policy of the 21st century, "what does nobody know?"
In this context, in recent weeks we have read opinions about whether this will be the last increase in this cycle, or at least for a while, but Jerome Powell –the Fed chairman– cooled down that perspective, pointing out that he is not closed to anything , and who continue with the vision of making decisions meeting by meeting. Christine Lagarde – ECB President – also pointed to that meeting-to-meeting decision framework. Somehow, it leads us to wonder if we are witnessing a hard monetary policy in a short space of time that aims to have long-term effects or a trial and error system in the face of inflation that has not just subsided. With the current price level in the euro area, almost three times above the target (2%), it is difficult to think that the increase in the cost of money has ended.
Autumn-winter will soon arrive without us having all the solutions for the energy cost problems that we have been experiencing for months. In this context, economies like the Spanish one are not particularly benefited because inflation is notably lower, despite the intense pull of economic activity, especially due to tourism. Therefore, in a broad monetary zone, there seem to be too many divergences in inflation that may make it difficult for some to grow and for others to contain these prices. New round in this set of difficult decisions, in September.
