- The Inflation Peak Has Been Reached According to the Head of the Federal Reserve
Bundesbank chief Joachim Nagel is positive about inflation in the Eurozone. "The major surge in inflation has passed," Nagel stated to the "Frankfurter Allgemeine Zeitung" (FAZ, Wednesday). "As long as there isn't another significant unexpected incident like the Russian invasion of Ukraine in February 2022, then inflation should keep heading towards 2%.>"
However, it's wise not to break out the champagne just yet. "We haven't reached our destination yet. We need to stay alert and monitor the potential hazards as we approach stable pricing, that's our role as a central bank."
Nagel wasn't prepared to guarantee a rate cut at the upcoming European Central Bank (ECB) meeting. "We're not on autopilot yet," Nagel stressed. "But I'd say: Inflation appears to be on the right track."
Market anticipation lean towards a rate cut
The ECB will decide on interest rates on September 12. Market anticipations suggest a reduction in rates. Inflation in the eurozone has recently neared the ECB's target of 2%, hitting 2.2% in August. The central bank lowered interest rates for the first time since the inflation spike in June. In July, the ECB held interest rates steady and kept the prospect of further rate cuts in September on the table.
During his interview with the FAZ, Nagel also hinted that the Bundesbank might incur operational losses this year. "We might see losses on a similar scale as 2023 this year. Since we've pretty much used up our risk provisions, we'll need to work with carryover losses for the coming years."
"But what's crucial to me: The Bundesbank's profits will resurface in the future." The Bundesbank's balance sheet is strong, with substantial valuation reserves, Nagel asserted. "So, there's no need to fret - the Bundesbank doesn't require additional capital."
Despite the potential operational losses for the Bundesbank this year, Nagel remains optimistic about Germany's economic outlook. "Inflation in Germany is also trending towards the ECB's target, and we see no need for Germany to request additional capital from the Bundesbank."
