ECB to Stay Vocal on Option of More Restrictive Policy in Future — Market Talk
EUROPE, Sept. 4 – The European Central Bank (ECB) will likely mark out a higher-for-longer communication strategy on interest rates, based on current market uncertainty, structural persistence of inflation and historical errors, according to Deutsche Bank economists.
At Jackson Hole, ECB president Christine Lagarde made it clear that shocks such as the Ukraine war undermined confidence, while recent shifts in the economy from inflation and a tight labor market can’t be assumed to be temporary, the economists note. Lagarde also stressed that policymakers need to be open to inflation being longer lasting, for example if global supply becomes less elastic and global competition is reduced.
Finally, as reported by News Wires in their Market Talk publication, historical precedent shows that central banks were too quick to ease policy stances from oil-price shocks of the 1970s, and retightening would come at a greater economic cost, the economists add.