“Most participants felt that a 0.50 percentage point increase in interest rates at the next few meetings would probably be appropriate,” read Wednesday’s published minutes of the FOMC’s most recent May 3-4 meeting. The swift reduction in monetary policy support for the economy should then allow the Fed to reassess its monetary policy by the end of the year. The US Federal Reserve (FED) raised its key interest rate by 0.5 percentage points to between 0.75 and 1.00 percent at the most recent meeting.
And the European Central Bank (ECB)? At the beginning of the week, ECB President Christine Lagarde set a rough line by promising an end to negative key interest rates by late summer. Since the rate for bank deposits at the ECB is currently minus 0.5 percent, the proposal results Lagardes a rather leisurely pace of tightening with small rate hikes of 0.25 percentage points each, probably starting in July. The French left the subsequent course from autumn open.
However, this approach is not enough for some central bankers. The central bank heads of Austria, the Netherlands and Latvia have been the clearest so far. Austria’s first currency guardian, Robert Holzmann, had already voted on Tuesday for a major interest rate hike of 0.5 percentage points at the start of the monetary policy turnaround in July. The head of the Dutch central bank, Klaas Knot, said on Wednesday that such a step would be taken despite the guidelines Lagardes “not off the table”. The President of the Central Bank of Latvia, Martins Kazaks, took a similar position.
