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Central bankers keep interest rate plans secret
🇬🇷 Greece /Economy & Trade

Central bankers keep interest rate plans secret

From Kathimerini · () Greek

Translated from Greek, summarized and contextualized by DistantNews.

At a glance

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  • Central bank leaders from the ECB, Fed, Bank of England, and Bank of Canada declined to signal future interest rate decisions at a conference in Portugal.
  • They agreed that forward guidance, or predicting monetary policy direction, is unsuited to the current economic climate.
  • The shift away from forward guidance reflects a response to high inflation and the war in Iran, with differing policy paths among the banks.

Central bank chiefs deliberately kept their cards close to their chests regarding future interest rate hikes during an annual European Central Bank conference in Portugal. Christine Lagarde of the ECB, new Fed head Kevin Warsh, Bank of England Governor Andrew Bailey, and Bank of Canada Governor Tiff Macklem all agreed that "forward guidance", predicting monetary policy's direction, is ill-suited to today's environment.

The Fed's policymakers will decide whether to raise interest rates when they 'close the door' and begin their next meeting in four weeks.

— Kevin WarshSpeaking at the ECB's annual conference in Sintra, Portugal, regarding the Federal Reserve's future monetary policy.

Warsh, in his first public appearance since the Fed's June 16-17 meeting, stated that Fed policymakers will decide on rate increases when they "close the door" to their next meeting in four weeks. He warned that anyone trying to glean clues about the central bank's next moves would "fail." Warsh praised Lagarde and the ECB's stance on forward guidance, noting that the ECB abandoned this policy "some time ago."

Anyone who tries to extract clues about the central bank's next moves will 'fail.'

— Kevin WarshWarning about attempts to predict the Federal Reserve's interest rate decisions.

Lagarde explained that the ECB now follows a "framework guidance" approach. Instead of signaling the likely path of interest rates, the ECB explains the methodology behind its decisions. This allows market participants to assess economic developments independently rather than relying on pre-announced signals. "We found common purpose," Warsh emphasized, referring to the agreement on forward guidance, "I could not have said it better myself."

We have abandoned the policy of guidance on interest rates for quite some time.

— Christine LagardeExplaining the European Central Bank's shift away from forward guidance on monetary policy.

All four central banks face high inflation and the repercussions of the war in Iran, though their policies diverge. Warsh's comments after the June meeting led investors to increase the probability of a Fed rate hike in September, while the ECB has already raised rates. In contrast, the Bank of England and the Bank of Canada appear more cautious about further monetary tightening due to economic weakness.

We found common purpose.

— Kevin WarshReferring to the agreement among central bank leaders on abandoning forward guidance.
DistantNews Editorial

Originally published by Kathimerini in Greek. Translated, summarized, and contextualized by our editorial team with added local perspective. Read our editorial standards.

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