Like the US... Will the ECB also take a 'Giant Step'?

(Photo by Reuters)

[Asia Economy Reporter Yujin Cho] As the inflation rate in the Eurozone (19 countries using the euro) hits an all-time high, the European Central Bank (ECB) is expected to tighten monetary policy further. With forecasts even suggesting 'double-digit inflation rates,' the possibility is growing that Europe, following the United States, will implement a so-called 'giant step' by raising its benchmark interest rate by 0.75 percentage points at once.

According to Bloomberg and others on the 31st (local time), Eurostat, the statistical office of the European Union (EU), preliminarily reported that consumer prices in the Eurozone rose by 9.1% year-on-year in August. This is the highest increase in 25 years since related statistics began. The Eurozone's consumer price inflation rate has been hitting record highs for 10 consecutive months since November last year.

There is also a possibility that the already record-high European inflation will rise further next month. The prevailing view is that the inflation rate, which has already exceeded 9%, will soon reach double digits. Commerzbank economist Christoph Weil said, "There is a possibility that consumer prices will rise further this month (September)," adding, "As a result, the pressure on the ECB to continue raising interest rates will remain high." With no signs of easing in energy and food price increases, along with rising service costs and a 5% increase in non-energy industrial goods, ECB policymakers are facing deep concerns.

Major U.S. banks such as Goldman Sachs, Bank of America (BoA), and JP Morgan predict that the ECB is likely to implement a giant step at this meeting. Greg Fuzesi, an economist at JP Morgan, wrote in a memo to investors on the day, "With the release of August consumer price data, there are growing calls among monetary policy meeting participants for a stronger response," and "We expect a 0.75 percentage point increase at next week's meeting." The ECB, which began raising its benchmark interest rate for the first time in 11 years in July, is expected to finalize the rate hike amount at the monetary policy meeting scheduled for the 7th and 8th.

The situation in the United States is no different. Having already implemented giant steps in June and July, raising policy rates to the 2.25?2.50% range, the Federal Reserve (Fed) is expected to take a third giant step at the monetary policy meeting on the 20th?21st. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds (FF) futures market reflects a 70.5% probability that the Fed will raise rates by 0.75 percentage points in September. The probability of a 0.50 percentage point increase is about 29.5%.

Loretta Mester, President of the Federal Reserve Bank of Cleveland, said in a speech in Dayton, Ohio, that the U.S. benchmark interest rate is expected to rise above 4% within the next few months. She stated, "I do not expect the Fed to cut the federal funds rate next year," and "It is essential to raise rates to a level above 4% by early next year." This statement aligns with remarks made last week by Fed Chair Jerome Powell.

This content was produced with the assistance of AI translation services.