PARIS, March 21 (Reuters) – The monetary policies of the European Central Bank (ECB) and the Federal Reserve (Fed) will diverge in the near future, as the war in Ukraine will have very different effects on the economies of the union. European Union and the United States, announced on Monday the president of the Frankfurt institution, Christine Lagarde.
The Fed raised its main key rate by a quarter of a point last Wednesday and outlined an offensive strategy to tighten its monetary policy this year, while the time for a rate hike has not come for the ECB, which is however accelerating the withdrawal of its exceptional support for the economy in the face of inflation.
“Our two economies are in a different place in the economic cycle, even before the war in Ukraine,” Christine Lagarde told a lecture at the Institut Montaigne in Paris. “For geographical reasons, Europe is much more exposed (to war) than the United States”.
Soaring energy costs already propelled euro zone inflation to a record high last month to 5.9% year on year, nearly three times the ECB’s target.
The acceleration of inflation, combined with a rise in food prices, will have a heavy impact on household purchasing power. The ECB has slightly lowered its growth forecasts for this year and next.
Christine Lagarde argued that the United States is less dependent on commodity imports and that its trade will also be less affected, so that the two central banks will see their policy out of sync.
“Our monetary policies will not operate at exactly the same pace,” said the ECB President.
With the Russian-Ukrainian war, Europe will have to accelerate the ecological transition of its economy in order to reduce its dependence on energy from Russia, the EU’s largest supplier of natural gas.
This transition will have inflationary consequences in the short and medium term, warned Christine Lagarde, adding that the deflationary effect will only manifest itself in the long term. (Report Juliette Jabkhiro; written by Balazs Koranyi, French version Laetitia Volga, edited by Jean-Michel Bélot)