European Central Bank Will Allow Inflation To Exceed Target

The European Central Bank has completed its 18-month strategy review and is set to announce the results today.

Since taking over from Mario Draghi in late 2019, ECB President Christine Lagarde has made it one of her top goals to conduct the central bank’s first strategic review since 2003. Its findings could mark the beginning of the most significant reform of the tremendously powerful but still relatively young institution that dictates monetary policy for the eurozone’s 19 countries.

While markets are focusing on the European Central Bank’s (ECB) strategy assessment results, the ECB is preparing to allow inflation to exceed its 2 % target, according to information obtained by Bloomberg.

European Central Bank (ECB) officials agreed to update the target of keeping inflation “below but close to 2%,” which has created the impression it worried more about price growth above the target than below it.

The decision was made at a special meeting held to complete the ECB’s strategy review, which ended on Wednesday, Bloomberg reported.

This decision, which is part of the most significant strategic change in the ECB monetary policy in the last 20 years, indicates that the central bank has changed tactics to fight against sub-target inflation for years.

The ECB will announce the review results at 1100 GMT, followed by a Lagarde news conference at 1230 GMT.

“Global tax reform will happen very quickly”

Speaking before the G20 summit, which will occur at the weekend in Venice and whose main agenda is global tax reform, German Finance Minister Olaf Scholz said that the reform will “take place very quickly” and that the implementation is aimed to start in 2023.

“Everything will happen very quickly now,” Scholz, who is running as Social Democrat chancellor candidate in Germany’s elections in September, told Reuters in an interview.

“The goal is very ambitious: we want to have everything ready already so that it becomes an international practice in 2023,” he added, noting that the reform will “create billions of dollars in additional revenue” for both Europe and Germany. Stating that the most crucial factor is to bring an end to the tax avoidance practices that have been increasing for the last 20-30 years, Scholz said, “We will put an end to this. The race entered with the tax cut will now come to an end.”

Nine countries, including EU countries with low corporate taxes such as Ireland, Estonia, and Hungary, did not sign the global tax reform proposal, including the minimum corporate tax-supported by 130 countries in the OECD, and envisages taxing large companies where they operate. Apart from these three countries, the countries that objected are as follows: Peru, Barbados, Saint Vincent, and the Grenadines, Sri Lanka, Nigeria, and Kenya.

On the other hand, it is stated that Janet Yellen, the Treasury Secretary of the US government, who brought the subject to the G20, should convince the other members of the G20 at the meeting in Venice that “there will be no problems in the US Congress and the reform will be approved without question.”

In the US, Republicans and Democrats continue to debate over President Joe Biden’s proposed minimum corporate tax of 15 % (initially 21 %, but lowered to 15% to increase its appeal).

Fed Meeting Minutes

The minutes of the Fed’s latest Open Federal Market Committee (FOMC) meeting has been released.

In the minutes of the last Open Federal Market Committee (FOMC) meeting of the US Federal Reserve (Fed), held on June 15-16, it was seen that Fed officials have not yet clarified what the “significant improvement” in economic conditions will trigger the tightening of monetary conditions again.

“The committee’s standard of ‘substantial further progress’ was generally seen as not having yet been met, though participants expected progress to continue,” according to minutes from the June 15-16 Federal Open Market Committee meeting published Wednesday. “Various participants mentioned that they expected the conditions for beginning to reduce the pace of asset purchases to be met somewhat earlier than they had anticipated at previous meetings.”

There was little concern about inflationary pressures, the minutes noted, with some members stressing that the economy was still far from the targets. It was stated that the Fed should be ready to act if risks to inflation materialize.

Several participants emphasized “that uncertainty around the economic outlook was elevated and that it was too early to draw firm conclusions about the paths of the labor market and inflation,” the minutes noted.

Chair Jerome Powell may shed more light on the outlook next week when he appears before the Senate Banking Committee to deliver the Semi-Annual Monetary Policy Report to Congress. The July 15 hearing is scheduled to start at 9:30 a.m. in Washington.

Learn more about us