ECB has no room for complacency as attack on Fed raises risks, Kazaks says
They include a possible financial bubble in AI and China’s aggressive trade policy
[FRANKFURT] The European Central Bank (ECB) should be on alert as the US administration’s attack on the Federal Reserve raises new risks to the economic outlook, ECB policymaker Martins Kazaks said in an interview.
Fed chair Jerome Powell has been threatened with a criminal indictment over comments he made about the renovation of the Fed’s headquarters, casting a shadow over the independence of the world’s most powerful central bank.
Kazaks, the Latvian central bank governor and a candidate to become the ECB’s next vice-president, said the attack on the Fed was worthy of an emerging country, and added to a list of risks clouding the ECB’s horizon.
These include a possible financial bubble in artificial intelligence and China’s aggressive trade policy.
“Risks (to inflation and growth) are on both sides, and there’s no room for complacency,” Kazaks said. “We’ve seen a lapse into emerging market politics in the US, and there are risks from an AI-hype-driven valuation in the US financial markets.”
He argued that any erosion of the Fed’s independence was likely to ricochet on poorer US consumers via higher inflation, and later, result in higher interest rates to quell it.
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On China, he said its subsidies, export restrictions on rare earths and exchange-rate policy, which is seen capping the yuan’s appreciation, may not be in line with World Trade Organization rules.
He called for a response from Europe, including long-delayed structural reforms, but also industrial policy if needed.
As for ECB rates, Kazaks said they remained at an appropriate level.
He added that eurozone inflation has been delivering good news, with even core measures of price growth, which strip out more volatile components, now inching closer to the ECB’s 2 per cent target. REUTERS
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