Current Perspective of Fed and ECB

The latest situation in the world economy. It is well known that the world economy is not at its best right now. For this reason, the Fed and the ECB, which are the most important decision makers influencing the global economy, are closely followed by the world. Also, both made unusual changes in their policies, such as raising interest rates, reinforcing the notion that their economies were in danger. As it is known, while the Fed is currently dealing with a possible recession, the ECB is trying to deal with higher-than-normal inflation. As rate hikes are so rare in the Eurozone, the current and possible future actions of the ECB are closely watched by economists and investors around the world. Therefore, the actions of the ECB have the potential to affect the world economy due to the strength of the Euro effects. As for the Fed, the need to suppress inflation and prevent a recession is urgent and therefore inevitable. Therefore, the Fed's economic forecasts can be used to predict the Fed's possible actions.

 Fed economic projections. According to the majority of the Fed's board members and reserve bank governors' economic projections, real GDP growth is expected to slow further. According to March forecasts, real GDP was projected to grow by 2.8% y in 2022. However, new estimates for July predict that growth will fall to 1.7%. A 1.1% drop in annual growth forecasts is a rather unusual difference in a four-month period. In addition, the 2023 and 2024 forecasts were adjusted in the same direction.

Also, the unemployment rate estimates have changed. According to the March projection, the unemployment rate was estimated at 3.5% for 2022. However, this rate was revised to 3.7% in the July projection. In addition, the 2023 and 2024 forecasts were adjusted in line with the real GDP forecasts.

In addition, the PCE inflation and core PCE inflation forecasts for 2022, 2023 and 2024 have been revised to an upper percentage with the same logic. Therefore, it can easily be said that the US authorities seriously considered the possibility of recession and made their forecasts accordingly.

 ECB actions. ECB's actions are closely followed by economists and investors all over the world. Compared to the Fed, the ECB preferred a soft policy, raising the interest rate from negative to zero. However, although it is a soft policy, it does not change the fact that the Eurozone has experienced the first rate hike in 11 years. On the other hand, with this policy, the ECB aims to suppress inflation and protect the ongoing recovery process from the pandemic.

 Conclusion? It can easily be said that both economies are facing inflation-related threats and are trying to cope with similar approaches, although their aggression levels are different. Moreover, the decline of these two major economies can be clearly seen in this environment, and it can be safely said that economists will continue to closely monitor the movements of the Fed and ECB in order to make predictions about where the world economy is heading.

Kaynak: Tera Yatırım- Enver Erkan
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