the Central Bank Governors The major Western powers, only slightly euphoric, opened the door in August to good news for businesses and consumers. No meetings during the central month of the economic summer, and the September of flexibilityThe world’s major currency issuers have begun to drop their cold shoulder before the inflationary spiral began—in mid-2021—and have begun offering small tokens of affection to impatient markets, in the form of cheaper credit than North American and European economies They have been doubting it for a long time. From Frankfurt, the ECB has been sending signals that the July shutdown, with rates intact, was merely a technical pause in a rate-cutting cycle that seems to have already reached the local currency. This is evident in the minutes of the last monetary policy meeting, held at the end of July, where the Governing Council delivers a more dovish tone than the one it has religiously maintained in recent years. They recall that the September meeting “is widely seen as a time to reassess the level of monetary tightening”; a message that confirms what markets had already discounted: And the decline, even if it is slight At the price of money in a few weeks.
Although Frankfurt insists that its readings are based on a wealth of data – from wage pressure to the general state of the EU’s major economies – it is price analysis that drives the decisions of the central bank, which still has one option. The task: to control inflation. The slight rise in July in the eurozone by a tenth – up to 2.6% – responds, in the opinion of the institution’s economists, more to cyclical fluctuations, in a summer that always raises consumption, than to a new burden on the consumer price index. The ECB’s forecast, based on current price trends, is in a “broadly stable” position in the long term at around 2%; that is, in line with the organization’s strategic objectives. They estimate that the latter two points will be reached in the second half of 2025, thanks to the stability of the labor market – which has been very strong over the past two years, but is in the process of consolidation – and a calmer service sector. The services sector is expected, in this sense, to cool its price index; which currently stands at 4%, far from acceptable margins.
With financial markets on edge, demanding a sharp cut in interest rates to revive the free flow of investment and credit before the cost of money rises, the ECB is doing its best to temper any reading of its speech. The very frank stance, as many experts have advised for this reason, carries a significant inflationary risk: if capital reads that monetary constraints will disappear in the medium term, it will start accelerating its operations, which risks reaching a new peak in 2018. Prices. In this way, the governors have made an effort to show a “cautious” face, as Lagarde promised in all her presentations last year. Indeed, the wording of the minutes suggests an intention to pause interest rate cuts again after September. As for the timing, the governors say the ECB “can be patient and wait for further data to confirm that the decline in inflation is still on track.”
One of TimingsThat is, it is the chapter in which the tension between the different psyches of the central bank is noticeable. The range of positions that emerged at the meeting clearly shows the contradictions between the more traditional positions, which give priority to price control, and the more lenient positions, which recognize the potential damage to economic activity due to too long restrictions. Without explaining the origin of the positions, the minutes of the meeting show the priority of reaching, on the one hand, “the price target on time”; and on the other hand, “maintaining balance” in monetary decisions, given the risk of generating “unnecessary damage” to the main economies of the continent. It should be remembered that the first position traditionally corresponds to the central European bankers, to the Germans Joachim Nagel And the Austrian Robert Holzman; while the second arises from the alignment of the southern countries with Portugal and Greece and their leaders, Mario Centeno I Yannis Stornares– As main defenders.
Services, Hotspot
The health of service sector prices emerged at the July meeting as an emergency point: although the president Christine Lagarde The EMA’s vigilance on the third sector is often supported, and some Council members have read into the still high CPI a “setback in the inflationary cycle”. Many conservatives say, as the record shows, that the current 4% rate responds more to the delay in updating prices of various sub-sectors and products than to a “general reorganization” of the costs associated with them. However, the chances of continuing to bend the CPI curve are disappearing; the decline in prices in industry has already extended even to the problematic world of food, which ended July with an index of just over 3% in Catalonia, without going any further. In this way, inflation in the service sector will be the key point for the return of basic assets to their normal levels – a requirement that remains elusive at the moment, given that “on the current scale, the average rate is double that of the period before the global financial crisis”.-.
This means that the expected rate cut also comes from an unflattering prognosis: the economic recession, according to the central bank’s actions, has reached, in the conservatives’ view, the whole of Europe. The eurozone’s monetary leaders are aware, as the document states, that “short-term growth has deteriorated,” as evidenced by the latest purchasing indicators, especially industrial ones. Exports of goods and key societal manufacturing chains have slowed their expansion during this cycle – even in those economies that have overcome the possible recessions that Central Europe suffered in 2023 –; and the ability of GDP to survive for the time being is in the hands of the services sector – the most bloated sector in particular. Despite the moderately positive reading of the economy as a whole, the central bankers warn that continental industry could show a structural downward trend. “It is difficult to explain the weak performance of the manufacturing sector entirely by a short-term cyclical phenomenon,” the governors say, warning that the EU’s secondary sector could suffer from a “structural loss of competitiveness” that is lingering. Yes
Quick response from the financial world
Despite efforts to calm market expectations, the financial world is already ruling out successive rate cuts until the end of the year. Without going any further, ING Bank’s forecasting group suggests that Frankfurt will ease its monetary policy at least twice more before the end of the year; we’re even thinking about a third by the end of the year, if not early 2025. According to Reuters, the toughest features of EU monetary policy actually concern “October, not September.” This is precisely because the big credit sector tends to sell overly ambitious “forecasts” before political decisions are known – often, as market analyst Joaquin Robles pointed out to this outlet, waiting to pressure the regulator to act on its designs.
Beyond corporate estimates, Euribor acts as a notary of the movements that money is expected to make in the short and medium term. The interbank lending cost ratio will close August with its fifth consecutive monthly decline, and the expected decline is one of the sharpest in 2024. If the rate exceeds 3.5% at the end of July, the current forecast is for it to reach below the average of 3.2% by the end of August, with a daily rate that could even break the three-point barrier – last Friday it was 3.1%, and continues to fall. Alerts FalconsSo they seem to be on their way to the better. It will be necessary to see, after September, what kind of trench will be imposed on the central bank government.
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