Lagarde

• Other major central banks, such as the UK’s Bank of England and the European Central Bank (ECB), are likely to follow suit.
• But rate-setters face some dilemmas when it comes to balancing the use of interest rates to slow the economy versus the risk of a recession.
• As in other regions, such as the UK and EU, recent rapid increases have reversed around a decade of ultra-low rates.
• This leads to even higher interest rates being charged by financial institutions, and so is designed to slow the economy.
• And so the speech was a disappointment to financial markets, which have been rocked by recent sharp interest rates hikes.

Are we in a new economic era of high inflation?

• Indeed, all of the major central banks, including the Fed, dramatically underestimated the effect of the pandemic on inflation.
• But why didn’t the central banks’ economic forecasting models predict rising inflation?
• She also raised the possibility that, in the long term, weaker economic growth might indeed be the price of curbing inflation.

Dilemmas facing central banks

• The Jackson Hole meeting highlighted three key dilemmas for central banks.
• While inflation has fallen, core rates in the UK, EU and US are still well above the 2% target.
• Finally, central banks face real challenges in trying to restore their credibility.

• - PRESS RELEASE
  International use of the euro was resilient in 2022
  21 June 2023
  - Euro remains second most widely used currency, amid geopolitical risks and high inflation
  - Euro’s share at around 20% across various indicators of international currency use
  - Euro’s global appeal linked to stronger Economic and Monetary Union
  The international role of the euro was resilient in 2022, with its share across various indicators of international currency use averaging close to 20%.
• This was one of the main findings in the annual review of the international role of the euro, published today by the European Central Bank (ECB).
• “Despite a succession of new shocks, the international role of the euro remained resilient in 2022.
• The international role of the euro in foreign currency-denominated bond issuance, including international green bonds, as well as in invoicing of extra-euro area imports and exports, remained stable.