Central banks' different policies raise expectations and suspense

The central banks of the United States, Europe and other developed economies recently announced latest interest rates, showing that while their overall inflation is on a downward trend, core inflation remains relatively strong.

The US Federal Reserve first announced it would stop interest rate hikes after 10 consecutive rate hikes since March 2022, and raised its forecast for the US economic growth to 1 percent from 0.4 percent in March. Inflation data in May continued to slow down, indicating that the decision was in line with market expectations. However, after announcing a pause in interest rate hikes, the economic outlook released the same day showed the median forecast for the federal funds rate rose from 5.1 percent in March to 5.6 percent, suggesting another rate increase was still on the way. Several senior Fed officials said that "the full effects of tightening policy have yet to be felt" and that inflation remains too high.

This possibility of the Fed continuing to raise rates in July is not small, but market institutions believe the Fed will not raise rates any longer, saying "if the Fed thinks it needs to raise rates by an additional 50 basis points, why not now?"

The Fed's upward revision of economic forecasts, while some real economic indicators in the US are in the recession territory, is indeed puzzling. At the same time, the rapidly expanding debt scale has caused a rapid increase in the interest on the US federal government debts, and any additional increase on interest rates will further amplify the pressure on the government to pay interest, thus squeezing its monetary policy space.

While the Fed announced a pause in its interest rate hikes, the European Central Bank decided on Thursday to raise all three key interest rates in the eurozone by 25 basis points. ECB President Christine Lagarde said that given the high inflation, the central bank has not finished the fight against inflation. Some analysts pointed out that although the eurozone has seen a "technical recession" in the first quarter, the ECB still issued a clear signal to raise interest rates; this further narrowing of rate gap between the eurozone and the US is believed to be good for Europe.

However, it remains to be seen which developed economy will become the largest winner through implementing different monetary policies.