Afraid of a strong dollar? ECB official: We must consider the Fed’s movements when making decisions

Robert Holzmann, a member of the European Central Bank's Governing Council and President of the Austrian Central Bank, said that given the Fed's huge influence on the US dollar, ECB policymakers must take the Fed's movements into account when formulating monetary policy.

As the Federal Reserve continues to postpone interest rate cuts, the European Central Bank faces a dilemma. On the one hand, after a cumulative 450 basis points of interest rate hikes, the inflation rate in the Eurozone has dropped sharply from a record 10.6% to the current 2.4%, which means that policymakers have little left. the need to maintain austerity policies. But on the other hand, the Federal Reserve's delay in cutting interest rates has made the U.S. dollar exceptionally strong. ECB officials are worried that if the euro zone takes the lead in lowering interest rates, it may cause the euro to fall against the U.S. dollar.

Holzmann accepted an interview with the German Handelsblatt, and the relevant article was published on Wednesday (May 8) local time.

He said in the interview: "To a certain extent, our data and decisions are naturally affected by the Federal Reserve. We do not operate in a vacuum. For example, the Federal Reserve and the dollar are like the gorilla in the room. The so-called "gorilla in the room" is a slang term that refers to an obvious presence or influence in a situation that cannot be ignored.

The market currently generally expects the European Central Bank to start the process of cutting interest rates in June, but the timing of the first rate cut by the Federal Reserve that investors predict is constantly being postponed. This also makes ECB officials cautious about monetary policy after June.

Holzmann, one of the most hawkish officials on the ECB's Governing Council, warned against hasty actions.

Holzman said: “First, the basic prerequisite for the first rate cut must be met, that is, it is very likely that we will reach the inflation target by mid-2025. If this precondition matures in June, we will definitely take further measures. "

He added: "But I think there's absolutely no reason for us to cut interest rates too quickly and too much. Every step we take should depend on the data at that time, and we will have a lot of new data in September and December. Prediction, but that’s almost impossible in July.”

The last time the European Central Bank raised interest rates was in September last year, and it has remained on hold since then. The three key interest rates, the main refinancing interest rate, the marginal lending rate and the deposit mechanism interest rate, are currently 4.50%, 4.75% and 4.00% respectively.