European Risks Rising - FED 81

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In this episode of Bitcoin Magazine’s Fed Watch, we get an update on the European Central Bank (ECB), use a candy to make the Bank of Japan interesting, and we talk about recent troubles with BlockFi and bitcoin lending.

Fed Watch is a podcast for people interested in central bank current events. Bitcoin will consume central banks one day, understanding and documenting how that is happening, that’s where this show lives.

Inflation in Europe 

European inflation numbers for January 2022 came out this week, and set another Euro-era record at 5.1%, up from 5.0% in December. This consumer price increase of 5.1% must be in context of the worst energy and supply chain crisis in two generations. 

The price of natural gas and electricity have exploded in Europe, which has a trickle down effect on most prices in the economy. These price increases are not a direct side-effect of money printing, they are a direct effect of the pandemic response of nearly shutting down the global economy for two years.

We attempted to play the below 2 minute clip of President Lagarde speaking about inflation, but the audio on the livestream wasn’t set up properly. You can also find the full length press conference here.

<> https://youtu.be/f8MQ_Cn2Uck

Comparing the Politics of the ECB and Federal Reserve

I spent some time on the podcast comparing the highly produced press conference style of the ECB to that of the Federal Reserve. LaGarde appears to have a checklist of special interest groups that she must mention and placate. It strikes me as a political process, where Jerome Powell strikes me as much more concerned about the economics.

It is a central part of the Federal Reserve to stay fiercely independent from politics, as seen in the Raskin interview in front of the Senate Banking Committee. Her progressive views were on trial, and they wanted to make sure she wouldn’t be bringing her politics to a job at the Fed. The European Central Bank, on the other hand, conflates politics as part of their mandate.

European Policy Guidance for 2022

In the press conference, LaGarde said they’d let their QE programs run their course and finish up in late-March to early-April. That was not surprising. However, what did surprise the market was the fact that LaGarde would not repeat her statement from December’s press conference where she said the ECB would not raise rates in 2022.

The reason the market didn’t like this seemingly small detail is because it makes the ECB appear capricious. Compared to Powell, where he made his pivot and doubled down on it later, LaGarde does not give the sense of being confident in her opinions or evaluation of the economy. I attribute this to the overly politicized ECB, by the way. They are unable to focus on a clear mandate, becaus