TRANSCRIPT
Isabelle Gounin-Levy : The loss of independence of central banks is a risk that is currently being discussed in relation to the Fed. What could be the practical consequences of this?
Anis Bensaidani: History has taught us that the independence of central banks has improved the conduct of monetary policy. In the late 1970s, it enabled Chair Paul Volcker to sharply raise interest rates to curb inflation. When politicians exert pressure to reduce interest rates without justification in order to support the economy or reduce their interest burden, the risk of sustained inflation increases. As a result, both households and markets expect higher inflation. The former are then inclined to reduce their consumption, while the latter push long-term rates higher. Today, the United States must avoid both of these risks.
Isabelle Gounin-Levy : In the meantime, it should be remembered that the Federal Reserve is pursuing two objectives, namely ensuring price stability and maximum employment.
Anis Bensaidani: The two components of the dual mandate raise questions and currently have different implications in terms of monetary policy. Inflation has been overshooting its 2% year-on-year target for 55 months. Moreover, we forecast a moderate increase until mid-2026, driven by the pass-through of tariff increases, which suggests a restrictive bias.
At the same time, the labour market is deteriorating markedly, with weak payroll growth reflecting a deterioration in the business environment. These developments imply that the ‘Employment’ component should be prioritised in short-term decisions. This new landscape justifies an easing of monetary policy. We anticipate three rate cuts of 25bps each by the Fed, one per meeting, between September and December 2025.
Isabelle Gounin-Levy : Conversely, the European Central Bank now seems to be moving towards maintaining the status quo. Why is that?
Anis Bensaidani: First, we must give credit where credit is due. The ECB has pursued a gradual monetary easing policy, halving its deposit rate from 4% to 2% in just under a year. It has been able to pursue this policy because the previous monetary tightening policy reduced inflationary pressures. Inflation has thus returned to the ECB's target of 2%.
Nevertheless, it must be noted that European growth is showing signs of resilience and that the inflation rate is now firmly anchored at the 2% target. With the prospect of a recovery in German growth and the knock-on effects this will have on the rest of the eurozone, the wait-and-see approach prevails. The unemployment rate recently reached a historic low in the eurozone and the ECB is taking a cautious approach until it is certain that this recovery will not lead to inflationary pressures.
Recorded on 11th september 2025
