Lagarde speech: Direction of travel is quite clear on rates
Christine Lagarde, President of the European Central Bank (ECB), explains the ECB's decision to leave key rates unchanged at the October policy meeting and responds to questions from the press.
Key takeaways
"The inter-meeting period will be information-rich."
"Six weeks of additional time will give us a lot more information."
"Underlying inflation will probably take particular standing in decision."
"We look at the 10-year but also at entire bond curve."
"Debt issuance by hyperscalers plays a role in yield rise."
"Countries with high debt have to factor into fiscal policy plan that rates are higher, will probably remain higher."
"Fiscal plans have to comply with EU fiscal framework."
"Should market developments threaten transmission, we have instruments to respond."
"Direction of travel is quite clear on rates."
"We have no plan to restrict number of meetings."
"Business continuity has never failed at ECB, confident it will continue."
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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