Why Europe should decrease inflation quicker than the US

THE INFOGRAPHIC – In the event that there are no unexpected developments and the data substantiates a return of inflation to the target level of 2%, the European Central Bank (ECB) will reduce its interest rates in June. The possibility of a reduction in short-term interest rates in the United States has been put on hold until the end of the year.

At the beginning of the year, analysts were continuing to speculate on which central bank, the European Central Bank (ECB) or the Federal Reserve of the United States of America (Fed), would be the first to reduce interest rates.

The scenario is now becoming more predictable: the European Central Bank (ECB) will be the first to loosen its monetary policy, but it will do so cautiously (by 25 basis points), if the data indicates that inflation has returned to its goal level of 2%.

This is assuming that there are no surprises. May 10 was the day that the institution made the announcement that a reduction in interest rates is “plausible” for the month of June.

The possibility of a reduction in interest rates in the United States has been delayed until the end of the year for two reasons: inflation, which is still high, has even begun to rise again, which is a phenomenon that weighs on household morale and could penalize Joe Biden, who is running for re-election, and on the other hand, the economy, which is in dazzling form, appears to be accommodating historically high rates imposed by the Federal Reserve.

There are two completely different scenarios.

At the European level, where prices were severely impacted by the increase in energy prices brought about by the conflict in Ukraine, inflation reached a peak of 10.6% in October of 2022.

Although the United States is a country that is self-sufficient in terms of energy, the price increase was not as dramatic there.

In addition to this, the major financiers are forced to contend with a reality that is becoming increasingly opposite on both sides of the Atlantic.

The OECD, which does not advocate for monetary easing, forecasts that the growth rate in the United States will remain at 2.6% this year due to the fact that it was 2.5% in the previous year. In Europe, where development has been weak and needs to be boosted, the situation is actually considerably less favorable.

Another factor that contributes to the robust state of the American economy is the Inflation Reduction Act, which was passed in 2003.

The massive program that cost 370 billion dollars and was designed to stimulate green investments in the United States is not living up to its name because it did not have any effect on the inflation rate in the United States. On the other hand, it delivered a significant setback to Europe’s ability to compete.

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