ECB's Nagel: World economy is in very delicate situation
In an interview with Bloomberg on Tuesday, European Central Bank (ECB) policymaker and Bundesbank President Joachim Nagel noted that the world economy is in a very delicate situation and said that they need to have a better understanding of how to find compromises on tariffs.
Key takeaways
"Tariffs are not a good policy, that's for sure."
"In the Euro System we are on a good path."
"There is a lot of uncertainty, we have to be cautious."
I see a lot of good news when it comes to inflation."
"Much too early to come to final conclusion what tariff scenario means for both sides of the Atlantic."
"The role of Germany does not change with new financial package."
"The package is an important message to the world that Germany is doing its homework."
"It's not good to doubt the US Dollar's position as a safe haven."
"We should give back the US Treasury the safe haven status."
"Independence of central banks is the DNA of good central banking."
"Cannot exclude turbulence if central banks lose independence."
"Europe has to stand together in these complicated times."
"Confident that ECB rates will get back down to 2% this year."
Market reaction
EUR/USD showed no immediate reaction to these comments and was last seen trading marginally lower on the day at 1.1410.
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.