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Decision-making time for the central banks of the United States and the Eurozone, which are under pressure to do more to support the economy amid the recession caused by the pandemic. After committing to “inject” several billion. dollars in the financial system and having reduced interest rates to historically low levels, the room for maneuver is now tight.
The United States Federal Reserve meets today and tomorrow, while a day later, on Thursday, the witness passes to the European Central Bank. Japan’s central bank took the first step yesterday, lifting restrictions on government bond purchases and increasing corporate debt.
Although the Fed and ECB have already shown in practice that they will do whatever it takes to help restart the economy, they may have to do more. Among the options available to them are the expansion of quantitative easing (QE) programs to facilitate the provision of credit to companies and the commitment that interest rates will remain very low for a long time.
“The severity of the Covid-19 crisis is forcing central banks to run out of monetary policy,” said Tom Orlick, chief economist at Bloomberg Economics. “We hope that the ECB will expand the supplemental pandemic QE (PEPP) program.” For the Fed, we do not expect the announcement of additional support measures, but it will confirm that it has room to do more, “said Mr Orlik.
The FED concludes its two-day meeting tomorrow, the first scheduled since January. Meanwhile, United States Federal Reserve officials met several times and announced relief measures. The FED has reduced interest rates to almost zero and has activated a series of credit tools, both to reassure markets and to facilitate the flow of credit to companies. The balance of the Federal Reserve has already reached 6.57 trillion. Dollars
Economists in a Bloomberg survey have limited expectations of substantial changes at this week’s meeting. The vast majority, 90% and 87%, do not expect additional guidance on how long FED officials will keep interest rates close to zero or on future asset purchase rates.
The focus will be on estimates by FED President Jerome Powell on how deep the recession is in the US economy and forecasts for recovery.
Time of crisis and for the ECB
The ECB will also meet this week, specifically on Thursday, with the central bank shrugging as eurozone governments have yet to reach a common line of coordinated fiscal action at the European level.
ECB President Christine Lagarde warned European leaders last week that they had done too little and too late, sounding the alarm for a 15% recession in the eurozone this year. Despite warnings, EU leaders did not agree on the structure and resources of the European Rehabilitation Fund.
Most economists expect the ECB to maintain a stable monetary policy this week. as recently announced the additional QE of 750 billion euros, raising it to more than a trillion. asset purchases in euros. At the same time, it has made it easier for banks to finance business loans, with its decision to accept low-investment (junk) bonds as collateral.
However, one in four economists surveyed by BBG did not rule out a decision to increase the size of the Pandemic Property Market (PEPP) purchase program, although most expect that measure by September.
In announcing the acceptance of junk-rated bonds as collateral for bank loans last week, various scenarios are being discussed over whether the ECB will add low-investment assets to asset markets.
naftemporiki.gr with information from BBG, Reuters
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