Xinhua News Agency, Rome, October 13th: Interview with Guido Trafficante, Professor of Economics, European University, Rome: The European Central Bank's passive interest rate increase can hardly meet the impact of US monetary policy.
Guido Trafficante, a professor of economics at the European University in Rome, said in an exclusive interview with Xinhua News Agency recently that the aggressive interest rate increase by the Federal Reserve Board of the United States pushed the dollar to continue to strengthen, resulting in the weakening of the euro zone's local currency, increased inflationary pressure and capital outflow. Trafficante said that it is difficult for the European Central Bank to keep up with the Federal Reserve's decision to raise interest rates passively, and the negative spillover effect of the Federal Reserve's aggressive interest rate increase on the euro zone and Europe cannot be eliminated in the future.
Since March, the Federal Reserve has raised interest rates by 300 basis points. Affected by this, the exchange rate of the euro against the US dollar continued to fall, hitting a 20-year low in September.
Radical interest rate increase by the Federal Reserve has brought serious negative impact on the euro zone. Trafficante said that the Federal Reserve raised interest rates to promote the flow of capital to the United States. While the euro depreciates against the dollar, the bond market in the euro zone is in turmoil. The rising yields of government bonds in some member countries have increased the borrowing costs of European governments. In Italy, the public debt is high, coupled with the high inflation and energy crisis faced by euro-zone countries, the financial situation is particularly tense among euro-zone countries.
Trafficante pointed out that the aggressive interest rate increase by the Federal Reserve is also one of the main factors that influence the rising inflation in the euro zone. In September, the inflation rate in the euro zone reached an annual rate of 10%, hitting a record high again, far exceeding the European Central Bank's medium-term inflation target of 2%. In response to the persistently high inflation, after years of loose monetary policy, the European Central Bank had to raise its key interest rate twice in July and September this year, with a total increase of 125 basis points.
Trafficante said that since international commodities are denominated in US dollars, with the interest rate increase of the United States and the appreciation of the US dollar relative to the euro, Europe is facing great price pressure, and the European Central Bank and the Bank of England have to raise interest rates passively. However, due to the weak economy in the euro zone, the European Central Bank (ECB) could not raise interest rates as fast as the United States. Trafficante pointed out that apart from currency devaluation, the European economy is also facing additional pressure from the tense geopolitical situation, and the risk of economic recession is increasing.
Trafficante believes that at present, the European Central Bank can hardly cope with many negative impacts brought about by the aggressive interest rate increase by the Federal Reserve in a short time. For Europe, it is necessary to take policy measures to alleviate the impact on the macroeconomic level.