He chimes in with some views on the US administration's continued attack on the Federal Reserve in saying that:
- ECB should stand alert as US administration attack on the Fed raises new risks to the economic outlook
- The attack on the Fed is something out of "emerging market politics"
- It adds to a list of risks that is clouding the ECB outlook
- That list includes "AI-hype driven valuation" and China's aggressive trade policy
- "Risks to inflation and growth are on both sides and there's no room for complacency"
Building on that, Kazaks argues that if the Fed's independence were to be threatened and erodes, it would hurt the lower net worth US consumers even more as the backlash will hit via higher inflation. In turn, that will need higher interest rates to deal with the situation.
As for the ECB itself, he makes note that current interest rates are at an "appropriate level" and that inflation has been "delivering good news". On the latter, he says that core prices are continuing to inch closer towards the central bank's target of 2%.
We already got a glimpse to the risk to Fed independence to start the year and it will be a topic that will come about again when Powell's successor is named and how the policy path will evolve after his departure. So, expect this to be a key risk factor to undermine the dollar and potentially risk sentiment in the medium-term.
On the ECB outlook domestically, there's really nothing new. Policymakers continue to sit on their hands in waiting for more economic signals to work with but they aren't seeing any material change that will trigger a need to take action. As such, the ECB looks poised to stick with keeping monetary policy on hold at least for the foreseeable future.
