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The European Central Bank on Thursday authorized its first interest rate hike in 11 years in a bid to help cool rising inflation, becoming the latest central bank to more aggressively unwind policy that fueled economic growth during the pandemic even as global recession fears continue to rise.
ECB President Christine Lagarde has warned there are “growing signs” that suggest “supply shocks … [+]
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In a statement on Thursday, the ECB said it would raise rates by 50 basis points as a “key step to make sure inflation returns to its 2% target over the medium term”—coming in at the higher end of expectations calling for an increase of at least 25 basic points.
Officials also signaled additional hikes to come, saying “further normalization” of interest rates will be appropriate, though they suggested the larger hike on Thursday will allow them to move more slowly with future increases, adding: “The frontloading today . . . allows the Governing Council to make a transition to a meeting-by-meeting approach to interest rate decisions.”
The decision came after data showing inflation in the United Kingdom skyrocketed 9.4% in June, hitting a new 40-year high and surpassing similarly high inflation of 9.1% in the United States.
In a speech late last month, ECB President Christine Lagarde warned there are “growing signs”—including the ongoing war in Ukraine—that suggest “supply shocks hitting the economy could linger for longer” and further warned unforeseen shocks could de-anchor inflation expectations .
Lagarde doubled down on the message Thursday, telling reporters at a press conference that inflation could remain “undesirably high for some time” while also tempering concerns by saying she still doesn’t believe a recession in Europe is the most likely scenario over the next year .