A decisive transition to restrictive monetary policy is currently being viewed as a one-way street by the world’s largest central banks, the US. Federal Reserve and the ECB, which, despite the looming risk of a recession, is aiming for new and possibly more aggressive rate hikes.

The US Federal Reserve is determined to fight inflation and will not deviate from its course, but will continue to raise interest rates to prevent inflationary pressures from consolidating.

However, he knows that fighting inflation, the highest the superpower has seen in decades, will take a heavy toll on the American economy and workers and will not pay off immediately.

This was announced from the floor of the annual meeting of the Federal Reserve in Jackson Hole, Kansas City, the president of the bank. Jerome Powell, who emphasized that “a return to a stable price situation will take time and will require the decisive use of our tools to achieve a better balance between supply and demand.” He also stressed that “higher interest rates, lower growth and limited labor market opportunities will keep inflation in check but will also hurt households and businesses.”

However, he refrained from telling the markets what the pace of rate hikes might be in the near future. The Fed began raising interest rates in March and has repeatedly raised the cost of borrowing from near zero to 2.25-2.5%. His actions are the focus of investors trying to gauge how aggressive the dollar rate hike will be in meetings in the coming months.

At the same time, ECB sources who spoke to Reuters on condition of anonymity stressed that some bank officials want to consider raising interest rates by 75 basis points at the September meeting.

They cite the alarming rise in inflation and argue that aggressive rate hikes are needed despite the risk of a recession.

As noted by Reuters, until now, no ECB leader has openly advocated such a significant increase in interest rates.

However, decisive action by the Fed, which has already moved ahead with a 75 basis point hike in interest rates, as well as worrisome developments on the inflation front in the euro area, tends to make such an aggressive move controversial.

“I don’t necessarily support a 75bp increase. but I see no reason not to discuss it,” said one of the sources, who asked not to be named. And he clarified that “since the Fed did it, I see no reason why we shouldn’t even bring it to the table for discussion.”

On the table of the ECB is the question of raising interest rates by 75 basis points at the September meeting.

Increase in euro interest rates by 75 bp is still considered unlikely, given the resistance offered by countries in the European South. However, statements from these anonymous sources indicate that a 50 basis point hike in interest rates is almost certain. and, in addition, the trend that will prevail in the ECB will be towards restrictive policies.

Sources: Reuters, New York Times.