ECB Forum Preview: World’s main central bankers expected to shed light on interest rates as uncertainty grows
- Central bank bosses to discuss monetary policy collectively in the ECB forum.
- Divergence in recent monetary policy between the Fed, ECB, BoE and BoJ makes the event particularly interesting.
- Jerome Powell’s comment will be particularly scrutinized ahead of the July policy meeting.
Jerome Powell, Chairman of the Federal Reserve System (Fed), and Christine Lagarde, European Central Bank (ECB) President, will speak at the 2025 ECB Forum on Central Banking at 13:30 GMT on Tuesday, July 1.
Alongside Fed Chairman Powell and ECB President Lagarde, Bank of England (BoE) Governor Andrew Bailey and Bank of Japan (BoJ) Governor Kazuo Ueda will also be taking part in the same panel.
The Fed left its policy rate unchanged in the range of 4.25%-4.5% following the June policy meeting, and the revised Summary of Economic Projections (the so-called dot-plot) showed that policymakers were still projecting the Fed to cut the policy rate twice this year. While testifying about the Semiannual Monetary Policy Report before the US Congress, Powell explained that the reason they adopt a cautious approach to policy-easing is that forecasts in and out of the Fed expect a meaningful increase in inflation this year due to tariffs.
The ECB lowered its key rates by 25 basis points (bps) in June, and ECB President Lagarde hinted that they might be at the end of the easing cycle. Meanwhile, the BoE maintained its policy rate at 4.25% after the June meeting, but three members of the Monetary Policy Committee (MPC) voted in favor of a 25 bps rate cut, citing material further loosening in the labour market, subdued consumer demand and pay deals near sustainable rates. Finally, BoJ Governor Kazuo Ueda reiterated that they will continue to raise rates if the economy and prices move in line with their forecasts after leaving the short-term interest rate target unchanged in the range of 0.4%- 0.5% in June.
About Jerome Powell (via Federalreserve.gov)
"Jerome H. Powell first took office as Chair of the Board of Governors of the Federal Reserve System on February 5, 2018, for a four-year term. He was reappointed to the office and sworn in for a second four-year term on May 23, 2022. Mr. Powell also serves as Chairman of the Federal Open Market Committee, the System's principal monetary policymaking body. Mr. Powell has served as a member of the Board of Governors since taking office on May 25, 2012, to fill an unexpired term. He was reappointed to the Board and sworn in on June 16, 2014, for a term ending January 31, 2028."
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
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