Central bankers have outlined a very clear path to where their monetary policy is headed and they strive to remind it at every opportunity. The president of the Federal Reserve, Jerome Powell, has done it this week in his iberian tourfirst in Sintra (Portugal) and this Thursday in Madrid, where he had a talk at the Bank of Spain with the governor, Pablo Hernández de Cos. “Two interest rate hikes will be positive for the economy,” Powell stressed which echoed the sentiments of most Fed members, all the more in favor of keeping a tone aggressive [o hawkish] waiting for the impact that this new monetary cycle may have on the economy.
It should be remembered that the Federal Reserve decided at the last meeting in June not to touch the reference rates, after ten increases undertaken since March 2022. Interest rates in the US are located in a range of 5% to 5.25 %.
In the case of the euro zone, the president of the European Central Bank (ECB), Christine Lagarde, already recognized an upcoming rise in interest rates in July and now the doubts lie about what will happen in mid-September when the institution meet again. “For me it is absolutely open,” says Hernández de Cos Since, in his opinion, there are two opposing forces to adopt what would be the tenth rise in interest rates: on the one hand, wages that continue to push upwards; and, on the other, the weakness that is already intuited in some Eurozone data, due to the impact of monetary policy. “Given the speed and size” of the decisions taken by the ECB “we can miscalculate the consequences and for this reason we must closely follow the evolution” of the economy. “We have to be prepared to react according to what we see.”
De Cos wanted to emphasize once again that one of the consequences of higher financial costs will cause more “vulnerable” families and companies in the future. And in public terms, The governor says he is concerned “with a high deficit” given the 80% increase in public spending from 2007 levels and this is particularly complex, he says, “in a context of rising interest rates.”
However, and unlike what happens in the US, De Cos is confident in the solvency of the real estate sector, after the “strong adjustment” that he experienced after the outbreak of the subprime bubble in 2008 and which has reduced its weight on GDP from 12% to the current 6%. And this is a fundamental difference with respect to other countries in the euro zone such as the Netherlands or Germany, where very large adjustments are taking place in real estate valuations, as well as in the US, due to the implosion of the telecommutingaccording to Jerome Powell, which logically affects the reits dedicated to offices. However, the Fed Chairman understands that the risks are not “particularly concentrated in the big banks” and it does not seem to be a capital problem, for the moment.