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|ECB Leaves Interest Rates at Seven-Year High to Fight Inflation
|German industrial orders drop
|Western European Car Sales Fall by 6.7% in July, JD Power Says
|German June Exports Rise the Most in Nearly Two Years
|German Economy Contracted as Much as 1.5% in 2Q
|French Trade Deficit Expands to Record as Euro Curbs Exports
|Italian June Production Stalls as Record Oil Prices Damp Growth
|Fall in output fuels Spanish recession fears
ECB Leaves Interest Rates at Seven-Year High to Fight Inflation (Bloomberg) – The ECBkept interest rates at a seven-year high to fight inflation even as evidence of an economic slump mounts. ECB policy makers meeting in Frankfurt left the benchmark lending rate at 4.25 %, as predicted by all 60 economists in a Bloomberg News survey. The bank, which raised rates last month, will wait until the second quarter of next year to cut borrowing costs, a separate survey shows. The ECB is concerned that the fastest inflation in 16 years will help unions push through demands for higher wages and prompt companies to lift prices. At the same time, record energy costs and the stronger euro are strangling growth. Economic confidence dropped the most since the Sept. 11 terrorist attacks in July and Europe’s manufacturing and service industries contracted for a second month. ECB President Jean-Claude Trichet will hold a press conference 2:30 p.m. to explain today’s decision.
Same as UK, less costly to address inflation now rather than support growth and address inflation later if it gets worse.
It’s been said in the US that the Fed needs to firm up the economy first, and then address inflation. To most Central Bankers this makes no sense, as they use weakness to bring inflation down.
In their view that means the Fed wants to get the economy strong enough to then weaken it.
The Fed majority sees it differently.
They agree with the above.
However, for the last year they have been forecasting lower inflation and lower growth were willing to take the chance that supporting growth would not result in higher inflation.
Now, a year later, the FOMC is faced with higher inflation and more growth than the UK and Eurozone, and systemic ‘market functioning’ risk remains.
The FOMC continues to give the latter priority as they struggle with fundamental liquidity issues that stem from a continuing lack of understanding of monetary operations.