The European Central Bank Raises Rates Again

As clouds continue to gather over Europe’s economy, the European Central Bank imposed another large interest-rate increase on Thursday, as policymakers tried to quickly quell the region’s record-high inflation.
The central bank, which sets monetary policy for the 19 countries that use the euro, raised interest rates by three-quarters of a percentage point, matching the previous increase last month. After a slow start in raising rates — its July increase was the first in more than a decade — the bank said it had rapidly tightened its policy stance as inflation has proved worse and more persistent than the bank expected.
In just three months, the bank has raised rates by 2 percentage points, the fastest pace of tightening in the bank’s two-decade history.
Consumer prices rose 9.9 percent on average in the eurozone in September from a year earlier, the fastest pace on record, driven by energy and food prices. The bank targets a 2 percent inflation rate.
“Inflation remains far too high and will stay above the target for an extended period,” Christine Lagarde, the president of the central bank, said at a news conference in Frankfurt on Thursday.
The bank’s policy stance is intended to weaken the forces pushing up demand and guard against the risk that inflation expectations persistently shift higher, she said.
“We are not done yet; there is more ground to cover,” Ms. Lagarde said.
But the central bank provided few details about the precise path of interest rate hikes. Ms. Lagarde said the bank had made “substantial” progress in withdrawing easy money from the eurozone, and while interest rates would rise further, the number and magnitude of upcoming moves would be decided based on data at each policy meeting. Because of the heightened uncertainty, it was unhelpful to provide too much forward guidance, she added.
The challenges facing central bankers have increased in the past few months as lawmakers have taken more steps to protect households and businesses from rising prices, especially high energy bills. Central bankers have warned that fiscal policy must not work at odds with monetary policy. Britain has become an international example of this risk. Last week, Liz Truss resigned as prime minister after her tax cuts provoked turmoil in financial markets.

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