Global | Reaction function and communication

Summary

The Eurozone and the United States are facing inflationary pressures that extend beyond energy, forcing the ECB and the Fed to raise their inflation forecasts. The central banks are shifting their course with varying degrees of determination.

Key points

• Key points:
• Tensions in the Middle East and the rebound in oil prices are raising inflation forecasts for this year to 3% in the Eurozone and up to 3.6% in the United States. Inflation's deviation from its target should be of greater concern in the U.S. than in Europe.
• The Eurozone is experiencing weak growth and is more vulnerable to energy shocks, whereas the United States is benefiting from the AI boom. Given America's status as a net energy exporter, the impact on inflation is a bigger concern than the impact on growth.
• The ECB's 25-basis-point rate hike places rates in a neutral-accommodative zone, which should not have a severe impact.
• The Fed has removed its downward bias, and a significant number of its members are signaling rate hikes. More importantly, its new chairman (K. Warsh) maintains an unequivocal commitment to price stability while ushering in a new era of communication policy: more direct and concise (too much?).

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