The head of the European Central Bank, Christine Lagarde, and the head of the Dallas Fed Lorie. K Logan commented today on the situation in the Eurozone economy and the risks and opportunities for the US banking sector. We can see strenghtened EUR currency today, with EURUSD 0,2% rise.
ECB Lagarde
- If ECB interest rates are held long enough, they will bring inflation down to the 2% target
- However, if there are major shocks to the economy, the bank will have to change and adjust policy
- In the months ahead, the bank expects inflation to rise; the bank should not take the 2.9% reading as definitive and certain to reach the target
- I regret that the fiscal policy framework in the EU has still not been agreed upon
Fed Logan
- To strengthen tools and influence on the financial sector, the Fed could further consider centrally cleared repo operations
- Supervisors' expectations of testing the discount window and the required initial level of collateral could also reduce liquidity risks for the banking sector
- The Basel III leverage ratio may raise the cost of holding reserves, which could harm the goal of reducing the aforementioned risks
- It is important to continue normalizing the Fed's balance sheet. Too much Federal Reserve assets could push inflation above target, complicate communications
- Central banks must be prepared to respond if reserves unexpectedly fall to too low a level. The Fed has several tools for this, including the SRF.
- Monetary policy support systems reduce liquidity risk, but do not eliminate it.
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