Expert insight

Central banks have a short runway for a soft landing

April 29, 2022

Jumana Saleheen, Ph.D.

Vanguard European Chief Economist

Market policy rate expectations reflect a tale of two regions
A line chart shows market expectations for Federal Reserve and European Central Bank policy rates, as well as Vanguard’s assessment of the neutral rate. In the United States, the neutral rate starts in a range around 1.6% to 2.1% in April 2021, increasing steadily into 2025 before leveling off through 2030 in a range around 2.5% to 3%. Market expectations for Fed policy rates surpass the neutral rate beginning in July 2022 and stay above the neutral rate through December 2024. They then fall into the neutral rate range through 2030. In the euro area, the neutral rate starts in a range around 1.5% to 2% in April 2021, increasing steadily into 2025 before leveling off through 2030 in a range around 2.5% to 3%. Market expectations for ECB policy rates remain below the neutral rate through 2030.
Inflation dynamics support lower euro area policy rates
A line chart shows headline inflation and core inflation in the United States and the euro area. In the U.S., headline inflation climbed to 8.5% and core inflation to 6.5% in their March 2022 reading. In the euro area, headline inflation climbed to 7.4% and core inflation to 2.9% in their March 2022 reading.
Unanticipated shocks matter to policy rates, too
Central bank credibility benefits businesses and households
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