Editing European Central Bank (section)

==== Response to the 2021 inflation crisis ====
After big increases in the inflation rates throughout 2021 and 2022, the European Central Bank and the FED finally decided to raise their interest rates and abandon their very low interest rates, for the first time since the sovereign debt crisis and the end of the CBI era, as it had become clear the inflationary trend wasn't temporary.<ref name=":0" /> This decision came in late July 2022 for the ECB, when the inflation rate in the eurozone was already at 8.9% and had been higher than the 2% target for more than a year, and in March 2022 for the FED.<ref>{{Cite web |last1=Heimberger |first1=Philipp |last2=Steininger |first2=Lea |date=2022-08-15 |title=ECB interest rate hikes will damage climate protection policies |url=https://blogs.lse.ac.uk/europpblog/ |access-date=2024-01-13 |website=LSE European Politics and Policy (EUROPP) blog}}</ref> The European Central Bank's response to the Federal Reserve's actions can partly be attributed to concerns about imported inflation from the USA. Specifically, if the FED increases its policy rates while the ECB remains static, it could lead to a depreciation of the euro against the dollar. Such a scenario would likely result in higher import costs for the eurozone, as many global trade goods are priced in dollars. On the other hand, this would benefit the US economy by making imports from the eurozone cheaper.<ref>{{Cite journal |last1=Degasperi |first1=Riccardo |last2=Hong |first2=Seokki Simon |last3=Ricco |first3=Giovanni |date=2023-01-13 |title=The Global Transmission of U.S. Monetary Policy |url=https://ideas.repec.org//p/crs/wpaper/2023-02.html |journal=Working Papers |language=en}}</ref><ref>{{Cite journal |last1=Breitenlechner |first1=Max |last2=Georgiadis |first2=Georgios |last3=Schumann |first3=Ben |date=2022-10-01 |title=What goes around comes around: How large are spillbacks from US monetary policy? |url=https://www.sciencedirect.com/science/article/pii/S0304393222000940 |journal=Journal of Monetary Economics |volume=131 |pages=45–60 |doi=10.1016/j.jmoneco.2022.07.001 |issn=0304-3932|hdl=10419/238263 |hdl-access=free }}</ref><ref name=":2">{{Cite journal |last1=Moessner |first1=Richhild |last2=Xia |first2=Dora |last3=Zampolli |first3=Fabrizio |date=2023-06-01 |title=Global Inflation and Global Monetary Policy Tightening: Implications for the Euro Area |url=https://www.sciendo.com/article/10.2478/ie-2023-0031 |journal=Intereconomics |language=en |volume=58 |issue=3 |pages=151–154 |doi=10.2478/ie-2023-0031 |issn=1613-964X|hdl=10419/275711 |hdl-access=free }}</ref>

Furthermore, the impact of US dollar appreciation, following the FED's policy rate hikes, tends to be more pronounced in the international inflation rates of energy and food. These commodities are commonly priced in US dollars, making their inflation rates more sensitive to exchange rate variations.<ref>{{Cite journal |last=Moessner |first=Richhild |date=2022 |title=Effects of Precipitation on Food Consumer Price Inflation |url=https://www.ssrn.com/abstract=4235476 |journal=SSRN Electronic Journal |language=en |doi=10.2139/ssrn.4235476 |hdl=10419/265996 |s2cid=252772695 |issn=1556-5068|hdl-access=free }}</ref> In the European Union, public inflation expectations are significantly influenced by the prices of energy and food. Thus, this form of imported inflation can further exacerbate overall inflation levels of the eurozone.

The ECB also declared its intention to systematically diminish net asset purchases within their asset purchase program (APP) and end them under the pandemic emergency purchase program (PEPP) launched during the COVID crisis by the first trimester of 2022.<ref name=":0" /> On the other hand, the Federal Reserve initiated the reduction of its asset purchase program in November 2021, to finally stop it by March 2022. The Asset Purchase Programs of the ECB initially boosted asset values on bank balance sheets and led to expectations of lower future short short-term interest rates. These programs also raised inflation expectations, eventually reanchoring long-term inflation expectations. Phasing out the Asset Purchase Programs thus signals alignment with the different policy rate hikes in an attempt to cool down the economy and demonstrates a commitment to combating inflation.<ref>{{Cite journal |last1=Burlon |first1=Lorenzo |last2=Notarpietro |first2=Alessandro |last3=Pisani |first3=Massimiliano |date=2019-11-01 |title=Macroeconomic effects of an open-ended asset purchase programme |url=https://www.sciencedirect.com/science/article/pii/S0161893819300250 |journal=Journal of Policy Modeling |volume=41 |issue=6 |pages=1144–1159 |doi=10.1016/j.jpolmod.2019.03.005 |issn=0161-8938}}</ref><ref>{{Cite report |url=https://econpapers.repec.org/paper/ecbecbwps/20161956.htm |title=The ECB's asset purchase programme: an early assessment |last1=Breckenfelder |first1=Johannes |last2=De Fiore |first2=Fiorella |date=2016 |publisher=European Central Bank |issue=1956 |last3=Andrade |first3=Philippe |last4=Karadi |first4=Peter |last5=Tristani |first5=Oreste}}</ref><ref>{{Cite journal |last1=Benigno |first1=Pierpaolo |last2=Canofari |first2=Paolo |last3=Di Bartolomeo |first3=Giovanni |last4=Messori |first4=Marcello |date=July 2023 |title=The ECB's asset purchase programme: Theory, effects, and risks |url=https://onlinelibrary.wiley.com/doi/10.1111/joes.12521 |journal=Journal of Economic Surveys |language=en |volume=37 |issue=3 |pages=890–914 |doi=10.1111/joes.12521 |hdl=11385/223759 |s2cid=250636847 |issn=0950-0804|hdl-access=free }}</ref>

Research indicates that the European Central Bank responded to the escalating inflation more slowly and cautiously than the FED, showing hopes that a moderate tightening of monetary policy would suffice. The ECB was notably slower in acknowledging the mistaken nature of its initial assumption that the inflationary trend would be transitory.<ref name=":3" /> The transition away from extremely low interest rates was soon accompanied by various rate increases, culminating in the ECB's main rate reaching 4% by the end of September.<ref>{{Cite web |last=Board of Governors of the Federal Reserve System (US) |date=1954-07-01 |title=Federal Funds Effective Rate |url=https://fred.stlouisfed.org/series/FEDFUNDS |access-date=2024-01-19 |website=FRED, Federal Reserve Bank of St. Louis}}</ref> In contrast, the FED's latest rate hike elevated the Effective Federal Funds Rate to 5.33% in August, underscoring a more aggressive and rapid tightening of monetary policy compared to the ECB's approach.<ref>{{Cite web |date=2023-12-13 |title=Official interest rates |url=https://www.ecb.europa.eu/stats/policy_and_exchange_rates/key_ecb_interest_rates/html/index.en.html |access-date=2024-01-19 |website=European Central Bank |language=en}}</ref> However, the global monetary tightening cycle turned out to be the most synchronized one in the past half-century. By February 2023, more than 90% of economies had hiked their policy rates. The latest peak of highly synchronized action by central banks was during the 1970s and the oil prices shocks where 70% of them had raised their interest rates.<ref name=":2" />