But how far can the ECB break away from the Fed? ECB President Christine Lagarde said the ECB's actions were “data-driven” and in no way “dependent on the Fed.” Portugal's ECB Governing Council member Mario Centeno also stressed that the Frankfurt-based central bank “doesn't care about the United States,” but there are other more critical voices on the Governing Council.[2]
“If we move too far away from the Fed, it will be difficult,” said Robert Holzmann, head of Austria's central bank. “Even if the Fed doesn't cut rates at all this year, it's hard to imagine they'll cut them three or four times.'' Bank of Slovenia Governor Bosjan Vasle is also cautious. “The economic situation in the United States is currently different from the economic situation in the euro area,” he said, so “it stands to reason that the monetary policy response will be different.” However, there are limits to this divergence. ” Boris Vujicic of the Central Bank of Croatia made a similar point, saying, “The longer the potential rift exists between us and the Fed, the greater the impact is likely to be.”
Of course, all central bankers focus on the exchange rate, and although it is not a central bank's goal, it is also part of monetary policy considerations. Interest rate differentials that result in higher US interest rates could cause the euro to weaken. “A rapid devaluation would be misplaced and would reignite concerns of further imported inflation, especially since oil prices are already rising again,” said Ulrike Kastens, European economist at DWS. In this regard, we actually welcome the argument that there is no significant divergence in monetary policy between the euro area and the US, as we believe that there are still inflationary risks, particularly with respect to service prices. “We remain firmly committed to the view of gradual interest rate cuts in the euro area,” Kastens said.[3]
