Global Central Bank Speeches: Impacts on Interest Rates, Growth, and Currency Strength

2023-11-09 22:02:00

Two continents, two speeches. When François Villeroy de Galhau, the governor of the Bank of France, judged on Thursday that the ECB’s interest rates were no longer going to increase ” except shock » et « except surprise », Jerome Powell, the president of the American Central Bank, gave a much less optimistic speech a few hours later. After having maintained American rates during the last two monetary meetings in their range of 5.25% to 5.50% – at the highest in more than 20 years – the Fed has not ruled out raising them.

For the Banque de France, “the rise in rates is over, barring surprise, barring shock”

Dynamic growth

« We will not hesitate » to raise them once more « if necessary » in the face of high inflation, he warned. In September, this amounted to 3.4% over one year, according to the PCE index, far from the 2% hoped for. The Fed’s rate hikes aim to slow economic activity, in order to ease pressure on prices. However, GDP growth more than doubled in the 3rd quarter, to 4.9% at an annualized rate. Nevertheless, ” we see it slowing down in the coming quarters “, underlined Jerome Powell. But growth that remains too vigorous might compromise future progress, “ce which might justify a monetary policy response “, that is to say an increase in rates, further indicated the boss of the Fed.

Wall Street ends in the red

His comments caused the New York Stock Exchange to plunge. After eight days of progression, the broad S&P 500 index, the most representative of the American stock market, lost 0.81%. The Dow Jones slipped 0.65% and the Nasdaq, with its strong technological coloring, dropped 0.94%, according to provisional results. On the bond market, yields on ten-year US Treasury bonds jumped, accelerating their rise to 4.62% compared to 4.49% the day before. They had climbed to 5% two weeks ago, a 16-year high. The German bond with the same maturity was at 2.65% compared to 2.61% the day before.

Will there still be an increase? Some 85% of investors are betting that the central bank will not raise rates in December, according to calculations on futures products made by CME Group. They were 90% before Jerome Powell’s intervention.

The dollar regains strength

In the meantime, immediately following the latter’s statements, the dollar regained strength. Around 7:20 p.m. GMT, the greenback suddenly increased by 0.35% once morest the euro to 1.0671 dollars per euro. The euro also suffered from the comments of the governor of the Bank of France François Villeroy de Galhau. Against the pound, the American currency climbed 0.48% to 1.2226 dollars.

In recent days, several Fed officials had left the door open to a further increase in key rates if inflation persisted. Without even talking regarding an increase, rates are likely to remain high for longer than expected, according to Patrick Harker, president of the Philadelphia Fed.

« A cut in the policy rate is not likely to happen in the near term. I agree with the position that rates will have to stay high for longer “, he said, noting the “ offsets » between monetary policy decisions and their effects on the real economy, specifying that “ keeping the rate stable will give time to catch up »

“We are experiencing slow but steady disinflation. Interest rates remain in restrictive territory (and slow down economic activity, Editor’s note) and, as long as they are, they will continue to slow inflation,” he added.

And Patrick Harker was optimistic regarding the trajectory of the coming months, with “ controlling inflation » and « lprotecting our economic foundations “. It anticipates inflation below 3.0% over one year in 2024, before a return to the 2.0% target.

And if he counts on “ a slowdown in GDP growth in the coming quarters “, however, he does not anticipate a “recession”.

Patrick Harker nevertheless warned of the dangers awaiting the American economy. A paralysis of the federal administration, if elected representatives of Congress cannot agree on the budget by November 17, might “ reduce fourth quarter GDP by one percentage point “, according to him.

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