September 30, 2022

Hardwood Paroxysm

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The European Central Bank raises interest rates by 75 basis points as the European Union risks recession: the hawks win. Lagarde admits errors in inflation estimates

Finally, the hard linehawks“. there European Central Bank Confirmed market expectations by approving an unprecedented rise in interest rates 75 basis points (0.75%) in hopes of curbing the increase in the prices. This is the second increase after the 0.5% increase in July and there will be several more increases, the president confirmed Christine Lagarde. The Eurotower statement explains this move with the need to “go back in time for‘inflation’ Our 2% targetAfter the decision – which was taken unanimously – the whole European lists turned. Negation. The fear is that higher interest rates, which are expressly intended to “rein in demand”, increase the risk Recession toEuro-zonedominated by the worst energy crisis Ever struggle with stopping gas supplies from Russia Nord Stream 1. The lawyer and former French minister tried to be reassured, saying that a recession is expected “only in the extreme scenario with Stop Absolutely gas importswith rationing All over Europe e No compensation or replacement supplies“.But the recognition that the ECB is not helping is the direction of the price my eyes wrong – wrong – wrong Forecasting: “We are done Errors As the number one European Central Bank, he said at a press conference, answering reporters’ questions. “We understand the reasons, and I can assure you that the staff is constantly updating, and incorporating what has not been taken into account thus far.” For a long time, the corporation considered inflation a phenomenon.temporary“.

The growth forecast for the eurozone has already been significantly revised downward: GDP is now growing 3.1% in 2022, from 0.9% in 2023 and by 1.9% in 2024. Meanwhile, estimates for the rate of price increase have been revised upwards: 8.1% in 2022and 5.5% in 2023 and 2.3% in 2024. Lagarde said wholesale gas prices would “remain extraordinarily high” and “also food swell It rose in August to 10.6 percent, partly reflecting an increase in energy-related input costs, food trade disruptions, and bad weather. “All of this, the press release states, is”Reducing the purchasing power of income of people, and although supply bottlenecks are receding, they continue to limit economic activity.” Moreover, “the adverse geopolitical situation, especiallyUnjustified aggression against Ukraine by Russiainfluence Confidence of companies and consumers.

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In this context, it is clear that the fiscal policies of individual countries are crucial. But Lagarde warns that “budgetary measures to mitigate the impact of higher energy prices must be so.” temporary Homes and businesses are targeted more vulnerable To reduce the risks of fueling inflationary pressures, improve the efficiency of public spending and maintain debt sustainability. Structural policies should aim to increase the growth potential of the euro area and support its resilience.”

Rising prices – Interest rates on transactions refinancing Principal, on facilitation of marginal lending etc. deposit They rose in the central bank to 1.25%, 1.50% and 0.75%, respectively, as of September 14. Further increases are expected Possible But every decision will remain.Data based“, explains the board, which made today’s decision “because inflation remains very high and is likely to remain above target for an extended period of time”. Board of Directors She anticipates new pressures – “more than two but less than five,” Lagarde said – in upcoming meetings of “curb demand And protection against the risks of a continuous increase in expected inflation.

Anti-spread tools – Council confirms Decisions about the new Anti-spread shield: “a tool Protecting the monetary policy transmission mechanism Can be used to counter Turbulent and unexplained market dynamics which seriously threatens the transmission of monetary policy in all eurozone countries, allowing the Governing Council to fulfill its mandate to maintain price stability more effectively.” of time.” For any concern Pepp Pandemic Purchase PlanThe Board of Directors intends to reinvest the paid-in capital on the securities maturing “at least until the end of 2024” and “in a flexible manner in order to meet the risks of the transmission mechanism associated with the epidemic”: that is, when the securities expire, the Germans can buy, in the event of an increase in the spread, Btp Italians.

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The turning point in July On July 21, the European Central Bank raised interest rates by 50 basis points: this was the first increase in 11 years. The end of the era of negative rates. Last month Isabelle Schnabel “Determination” is better than “caution” and that it is necessary to prevent inflation from getting into people’s expectations of prices and wages, said the German Executive Committee member. This is “even with the risk of low and high growth The unemploymentMember of the Italian Board of Directors Fabio Panettatalking with Milan FinanceHe cautioned instead that it is necessary to “take full account of the economic conditions of the eurozone. This means recognizing that the possibility of a recession is increasing”.

Risks The danger is to repeat what everyone now considers wrong Jean-Claude Trichetthe head of the European Central Bank who raised interest rates twice in 2011 when the eurozone crisis was getting worse, and condemned economies that were growing less: Bigs Already in trouble due to high debt. But the situation today is more ambiguous than the situation in a crisis sovereign debt, When the differences were a thermometer for the reliability of countries. So far I government bond yields On the rise, so far some are trying to make bearish bets against the euro, but added to this the effect of energy crisis. The worst possible scenario, which is Russia who closes the taps Gas, In fact. At the moment, the GDP data has not received alarming signals – eurozone growth in the second quarter of 2022 increased by 0.8% compared to the first three months of the year – but industrial production, which has already fallen in Italy for two months, is now starting to Go down even inside Germany.

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