Vítor Constâncio witnessed firsthand severe recessions, inflationary bouts, and a global financial crisis, as former Vice President of the European Central Bank (ECB) (2010 to 2018) and Governor of The Bank of Portugal (1985-1986, 2000-2010). He brings this considerable experience to examine the current challenges facing central bankers at the ECB as well as the Fed.
Constâncio argues that while U.S. inflation is driven by a strong demand generated by loose fiscal policy, the primary agent of European inflation was the surge in energy prices in 2022. However, he recognizes that what began as supply-side pressure has broadened out to other sectors of the Euro area economy, so the ECB’s hiking of interest rates to 4% was necessary. Constancio expects that a mild recession in Europe will tame inflation and that substantial further rate hikes from the ECB will likely not be needed. Filmed on July 6, 2023.
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Timecodes:
00:00 Introduction
00:48 Euro Area Inflation Is Mostly Due To Energy Shock, Not Demand
08:13 I Would Support A Pause In Interest Rate Hikes, Says Constancio
10:11 Recession In Europe Is Likely For 2023
14:35 ECB Unlikely To Cut Interest Rates During A Mild Recession
16:20 There Pressure on The European Central Bank (ECB) To Follow The Federal Reserve?
20:44 Exploring The Logic Of Negative Interest Rates
25:29 Interest Rates' Impact On The Economy
32:04 Fixed vs. Floating Mortgages
34:48 ECB's Reaction Function During The 2008 Great Financial Crisis
44:16 Recent Bank Failures (Silicon Valley Bank)
49:51 Credit Suisse
51:51 Basel III Regulation of Held-To-Matuity Accounts and Interest Rate Hedging
54:47 Fighting Inflation In 1970s Portugal
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Disclaimer: Nothing discussed on Forward Guidance should be considered as investment advice. Please always do your own research & speak to a financial advisor before thinking about, thinking about putting your money into these crazy markets.
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