Reference News, July 3 report - According to the website of the "Nikkei" on July 2, central bank leaders in developed economies are increasingly troubled by how to formulate monetary policy. Not only is there an approaching deadline for tariff negotiations, but also the escalating situation in the Middle East has added to the complexity. Meanwhile, measures taken by countries after the outbreak of the Ukraine war to curb inflation are now facing new problems.

On July 1, the European Central Bank's annual forum opened in Sintra, Portugal. Fed Chair Powell, when asked if President Trump's attacks had made his job difficult, gave a strong rebuttal, saying: "My focus is certainly 100% on maximizing employment and maintaining price and financial stability."

Along with Powell and ECB President Lagarde, Bank of Japan Governor Haruhiko Kuroda also attended the forum after two years. It is rare to see the three central bank governors together, and market participants were eager to grasp the nuances in their speeches.

This forum highlighted the severe environment faced by central banks. In 2023, the US and European central banks simultaneously raised interest rates, and the forum that year became a stage to demonstrate their determination to curb inflation. Although the current period has entered a rate-cutting channel, policy orientations have already begun to show differences, and Trump's high tariffs and the escalation of the Middle East situation have made decision-makers extremely difficult.

Powell said, "After seeing the scale of the tariffs, I decided to delay (the rate cut)," meaning that without the tariff policy, he would have started cutting rates. In the past four meetings ending in June, the Federal Reserve consistently decided to maintain the status quo, while Trump continuously demanded a significant rate cut. At the forum, there was even a scene where officials from the European Central Bank applauded Powell.

Although the European Central Bank did not encounter resistance in curbing inflation, it has not relaxed its vigilance either. Lagarde confidently stated, "Our environment is more favorable," but expressed concerns about "more uncertainties and risks of fragmentation."

The EU-US tariff negotiations will expire on the 9th. If no agreement is reached, the US will impose a 50% tariff on the EU. The EU has already prepared retaliatory measures in case of a failed negotiation. If a tariff war breaks out, the European economy may once again face inflationary pressure.

The eurozone's consumer price index rose 2.0% year-on-year in June, consistent with the target set by the European Central Bank. Although this is a significant drop compared to the over 10% surge seen after the outbreak of the Ukraine crisis in 2022, Lagarde still said, "We cannot say the task is complete now."

Rising geopolitical risks are also a concern for central banks. In June, as the US attacked Iranian nuclear facilities, concerns about oil supply increased. The price of North Sea Brent crude futures briefly exceeded $80 per barrel.

Differing from the US, which exports oil and liquefied natural gas, Europe and Japan rely on energy imports. When energy prices rise, it directly leads to income outflows and rising prices, making them more vulnerable to geopolitical risks.

The Bank of Japan, which has delayed raising interest rates, also faces a difficult choice. During a dialogue with Powell and others, Ueda introduced the price situation in Japan. When talking about further rate hikes, he spoke cautiously, saying, "More information is needed."

The Bank of Japan kept the policy rate unchanged at 0.5% for the third consecutive time in its June monetary policy meeting. The Bank of Japan's tariff negotiations with the Trump administration are also difficult, but the longer the talks drag on, the more uncertainty there is. Ueda pointed out: "Tariffs may have negative impacts on the economy and prices."

In Europe, the high inflation following the outbreak of the Ukraine war has made businesses and households more sensitive to price increases. Especially, companies may adjust prices more frequently, which means new shocks could lead to a resurgence of inflation. The Bank of Japan is also unable to escape the aftermath of the Ukraine crisis. (Translated by Liu Lin)

On June 30, White House Press Secretary Levitt displayed a table showing interest rates across global economies, which included content urging Fed Chair Powell to cut rates by President Trump. (AFP)

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