This website collects cookies to deliver better user experience. Cookie Policy
Accept
Sign In
The Wall Street Publication
  • Home
  • Trending
  • U.S
  • World
  • Politics
  • Business
    • Business
    • Economy
    • Real Estate
    • Markets
    • Personal Finance
  • Tech
  • Lifestyle
    • Lifestyle
    • Style
    • Arts
  • Health
  • Sports
  • Entertainment
Reading: Europe’s Hawkish Pivot Could Be More Bark Than Bite
Share
The Wall Street PublicationThe Wall Street Publication
Font ResizerAa
Search
  • Home
  • Trending
  • U.S
  • World
  • Politics
  • Business
    • Business
    • Economy
    • Real Estate
    • Markets
    • Personal Finance
  • Tech
  • Lifestyle
    • Lifestyle
    • Style
    • Arts
  • Health
  • Sports
  • Entertainment
Have an existing account? Sign In
Follow US
© 2024 The Wall Street Publication. All Rights Reserved.
The Wall Street Publication > Blog > Markets > Europe’s Hawkish Pivot Could Be More Bark Than Bite
Markets

Europe’s Hawkish Pivot Could Be More Bark Than Bite

Editorial Board Published February 4, 2022
Share
Europe’s Hawkish Pivot Could Be More Bark Than Bite
SHARE

European central banks seem ready to join the Federal Reserve on a cycle of tighter monetary policy. But their actions may have more to do with the misguided attempt to throw “shock and awe” at inflation expectations than a true commitment to higher interest rates.

On Thursday, the Bank of England raised rates for the second time in a row, bringing them to 0.5%. Shortly after, European Central Bank President Christine Lagarde opened the door to nudging up borrowing costs later this year. Derivatives contracts, which were already suggesting one rate raise by the ECB in 2022, have started pricing in two of them. The euro has gained more than 1% against the U.S. dollar, and 10-year German government-bond yields jumped from zero to almost 0.2% Friday. U.K. markets have been a bit more restrained.

Investors already knew that the BOE intended to tighten policy aggressively. The real shock came from the ECB, which was one of the few holdouts until eurozone inflation surprisingly hit an all-time high in January.

“The situation has indeed changed,” Ms. Lagarde said. “We do refer to the upside risk to inflation in our projection.” She also provided hints that a more concrete shift could happen when the ECB updates its economic forecasts in March.

Many investors are understandably tempted to jump into the “synchronized central-bank tightening” trade—that is, selling stocks, European bonds and the U.S. dollar in favor of euros and pounds. They shouldn’t get carried away.

Yes, some ECB members favor tighter policy, but such rhetoric has been heard before and rates in the eurozone still haven’t risen in 11 years. Ms. Lagarde said they won’t go up until the bond buying stops, and this is likely to take a few months even if announced in March. By then, favorable year-over-year comparisons will probably start to push down inflation. Could the ECB lift rates once to undo pandemic-era easing? Sure, but the Fed has room to do it five times during the same period.

In Britain, four out of nine rate-setters voted for even tighter policy, and Bank of England Gov. Andrew Bailey even went on the BBC, the U.K.’s public broadcaster, to ask workers not to demand big pay increases. Yet, after Thursday’s policy meeting he also said that the tightening is meant to be front loaded, and suggested that the market’s longer-term rate expectations are excessive. Currently, derivatives price them at 1.7% in a year’s time.

It very much looks like European central bankers’ main objective this week has been to send a message to consumers and firms to avoid higher inflation expectations from becoming “entrenched.” According to the orthodox policy handbook, this will prevent actual inflation from becoming self-sustaining.

There are reasons to doubt inflation expectations matter so much. Households’ actions are much more dependent on their financial situation and position of power over employers. Eurozone wage growth remains subdued and the Omicron variant of Covid-19 is already causing damage, business surveys suggest. Meanwhile, retail sales in the U.K. have looked really tepid of late, and consumers are facing a huge rise in energy bills in April that the latest government policies will fail to offset. These hardly look like demand-overflowing economies that will allow central banks to keep pushing borrowing costs above pre-pandemic levels. By contrast, the U.S. reported stellar labor-market data Friday.

Despite the dollar having already appreciated a lot recently, those betting on central-bank divergence may want to keep their cool and carry on.

To temper elevated inflation, Federal Reserve Chairman Jerome Powell said the central bank intends to raise short-term interest rates in mid-March. Photo: Federal Reserve (Vdeom from 1/26/22)

Write to Jon Sindreu at [email protected]

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

TAGGED:MarketsPAIDWall Street Publication
Share This Article
Twitter Email Copy Link Print
Previous Article This CEO Lets His Employees Work Whenever They Want—From Wherever They Want This CEO Lets His Employees Work Whenever They Want—From Wherever They Want
Next Article Winter Olympics Open in Beijing After Months of Tension Winter Olympics Open in Beijing After Months of Tension

Editor's Pick

Ottawa’s culinary neighborhood mourns younger Inuk chef killed in stabbing

Ottawa’s culinary neighborhood mourns younger Inuk chef killed in stabbing

The final time Patrick Garland noticed Joshua Qiyuk, the younger chef was on his manner residence after a shift at…

By Editorial Board 3 Min Read
If You Like Thuma’s Frames, You Would possibly Need to Look Into Thuma’s Mattress
If You Like Thuma’s Frames, You Would possibly Need to Look Into Thuma’s Mattress

The Thuma Hybrid affords three firmness choices: Plush, Medium, and Agency. I…

4 Min Read
Santa Rosa police arrest suspects in Condor Membership supervisor’s killing
Santa Rosa police arrest suspects in Condor Membership supervisor’s killing

Santa Rosa police have arrested a person and lady from Dublin within…

2 Min Read

Oponion

Present Information for Siblings: 28 Items to Have fun Your Bond

Present Information for Siblings: 28 Items to Have fun Your Bond

The vacation season is simply across the nook, and because…

November 18, 2024

Which authoritarian nation are we secretly deporting folks to in the present day?

South Sudan. Nicely, perhaps.  As of…

May 22, 2025

California voters are all about sticking it to Republicans

California voters overwhelmingly assist redrawing the…

August 22, 2025

Trump’s detachment from actuality made clear throughout disastrous city corridor

On Wednesday night time, President Donald…

May 2, 2025

Research reveals how lengthy Social Safety, $1.5M nest egg would final in 50 states

Ramsey Options monetary skilled George Kamel…

March 17, 2025

You Might Also Like

Nvidia turns into first firm to hit  trillion market valuation as AI growth drives historic development
Markets

Nvidia turns into first firm to hit $5 trillion market valuation as AI growth drives historic development

Nvidia CEO Jensen Huang joins ‘The Sunday Briefing’ to debate the brand new U.S.-made Blackwell AI chip wafer, how Trump-era…

6 Min Read
Trump pardon of the previous Binance CEO sparks unproven battle of curiosity allegations
Markets

Trump pardon of the previous Binance CEO sparks unproven battle of curiosity allegations

Commodity Futures Buying and selling Fee Appearing Chair Caroline Pham discusses the ‘crypto sprint’ initiative, how regulation might strengthen U.S.…

6 Min Read
Fox Corp hits promoting income document in first quarter
Markets

Fox Corp hits promoting income document in first quarter

Burger King and Tim Hortons gross sales up on resilient site visitors; Kimberly-Clark revenue falls; Report: Shops providing extra reductions…

2 Min Read
Ex-trader recordsdata 0M lawsuit towards UBS over Libor manipulation scandal
Markets

Ex-trader recordsdata $400M lawsuit towards UBS over Libor manipulation scandal

Market Insurrection co-founder Jon Najarian explains what brought about vitality costs to rise, addresses whether or not he would purchase…

4 Min Read
The Wall Street Publication

About Us

The Wall Street Publication, a distinguished part of the Enspirers News Group, stands as a beacon of excellence in journalism. Committed to delivering unfiltered global news, we pride ourselves on our trusted coverage of Politics, Business, Technology, and more.

Company

  • About Us
  • Newsroom Policies & Standards
  • Diversity & Inclusion
  • Careers
  • Media & Community Relations
  • WP Creative Group
  • Accessibility Statement

Contact

  • Contact Us
  • Contact Customer Care
  • Advertise
  • Licensing & Syndication
  • Request a Correction
  • Contact the Newsroom
  • Send a News Tip
  • Report a Vulnerability

Term of Use

  • Digital Products Terms of Sale
  • Terms of Service
  • Privacy Policy
  • Cookie Settings
  • Submissions & Discussion Policy
  • RSS Terms of Service
  • Ad Choices

© 2024 The Wall Street Publication. All Rights Reserved.

Welcome Back!

Sign in to your account

Lost your password?