ECB Not Cutting Rates Yet
Jean-Claude Trichet, president of the European Central Bank (ECB) gave a press conference this morning after deciding not to cut the key interest rates because of inflation concerns.
In his statement to the press, Trichet stated,
The latest information has confirmed the existence of strong short-term upward pressure on inflation. In fact, we are experiencing a rather protracted period of temporarily high annual rates of inflation, resulting mainly from increases in energy and food prices. The latest information also clearly confirms our assessment of prevailing upside risks to price stability over the medium term, in a context of continuing very vigorous money and credit growth. The economic fundamentals of the euro area are sound.
Trichet seems confident in the real GDP growth of the Euro-economy, and feels strongly that maintaining price stability should remain the main focus. He believes that while there is uncertainty and turmoil in the financial markets, this approach will help maintain the European economy. He also noted that there is an unusually high level of economic uncertainty.
Some experts say that the ECB could afford at least a small rate cut. They have been incredibly reluctant to do so. Over the last twelve months, euro consumer prices have gone up 3.5%. The euro is currently trading at 1.5825 dollars.
The ECB voted to keep the interest rates high, rather than take the approach of the United States Federal Reserve and continuously slash rates.
There is a small chance of a global recession occurring at this point. Monetary policy makers all over the world are now under pressure to make the right moves to help their regional economies. It is no longer a question of whether or not the United States will pull through “tough times,” but a question of whether or not a number of nations will be able to avoid recession.
