Central banks on both sides of the Atlantic are facing rising concerns over inflation, with the US Federal Reserve (Fed) and the European Central Bank (ECB) taking different approaches to managing it. While the Fed is expected to reduce interest rates in September, three months after Europe, due to a stronger US economy, inflation in America has slowed but remains higher than in Europe. The Personal Consumption Expenditure Index (PCE) and the Consumer Price Index (CPI) both show upward trends in inflation, with the Fed keeping interest rates unchanged in the upcoming weeks.
On the other hand, policymakers at the ECB are considering lowering interest rates earlier than anticipated, three months before the Fed, as annual consumer price inflation in Europe has been steadily declining. However, there is also a possibility that interest rates could be increased if consumer prices continue to fall or if economic conditions improve. Despite this, core inflation rates have been found to be similar when adjusted for housing costs in both regions.
The decision by central banks to cut interest rates at different times is influenced by economic growth in their respective regions. While the US economy is expected to grow faster than Europe due to strong consumer demand and job growth, Europe’s lingering energy crisis and weaker economic conditions contribute to its likelihood of cutting interest rates first. Additionally, households in America appear more willing to spend compared to European households due to better labor market prospects and higher consumer demand leading to a stronger economy and reluctance by the Fed