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In its meeting on 3 February, the European Central Bank’s (ECB’s) governing council agreed that it should not rule out the possibility of raising interest rates some time this year, insiders who asked not to be named told Bloomberg.
The Eurozone’s annual inflation rate climbed to 5.1 percent in January, its highest in more than two decades and more than twice the ECB’s 2-percent target rate.
The discussions involved the prospect of a rate hike as soon as next month, the sources said.
The bank also could end its bond-buying program in this year’s third quarter, the sources said.
Any change in policy this year would contradict repeated declarations by bank president Christine Lagarde that Europe’s economic recovery remains too fragile to bear higher rates and that the ECB’s interest rates would not change until at least 2024, as we have noted articles such as “ECB: More Monetary Methadone” (27 Apr 2021).
As recently as November, Lagarde stated that the bank would not budge rates from their current -0.50 in 2022 (“Will ECB Hold to Negative Interest Rate?” 2 Nov 2021).
At her 3 February press conference, Lagarde announced the bank would hold rates steady for now but did not repeat her past insistence that the bank would not boost rates this year.
“Compared with our expectations in December, risks to the inflation outlook are tilted to the upside, particularly in the near term,” she said.
“There also was a concern and a determination [among the bank’s policy committee] not to rush into a decision unless we had a proper and thorough assessment based on data and the analytical work that will take place in the next few weeks,” she added.
As she spoke, market traders priced in a rate lift sooner than has been expected.
Europe’s inflation rate rose to 5 percent through 2021, the highest since the European Union instituted the euro currency in 1999.
In January, prices rose 5.1 percent year over year, defying analysts’ expectations that its pace would slow to 4.4 percent last month.
TREND FORECAST: Lagarde has come down with The Jerome Powell Syndrome, repeating the U.S. Federal Reserve chair’s insistence that inflation was not a problem (“Fed Holds Firm on Policy Despite 5-Percent Inflation,” 20 Jul 2021), was temporary (“U.S. Market Overview,” 13 Jul 2021) and transitory (“Fed Leaves Policy Unchanged, Acknowledges Brighter Outlook,” 4 May 2021).
Lagarde has shown the same symptoms, calling inflation transitory (“European Central Bank Sets New Inflation Target,” 13 Jul 2021) and temporary (“Will ECB Hold to Negative Interest Rate?” 2 Nov 2021).
Price hikes clouding the world’s economic recovery “are of a temporary nature” Lagarde said in 21 May comments that we reported in “ECB Head Downplays Inflation” (25 May 2021).
“Underlying factors and fundamentals are certainly not there to let us… forecast that inflation will stay at these levels,” she said.
At the time, inflation was at 1.6 percent; it closed 2021 at 5 percent.
The cure for The Powell Syndrome: a dose of reality.
The central bankers tried to forestall tightening monetary policies for fear of squelching the phony over-valued stock market spike and the artificially inflated economic recovery.
Now, with inflation far beyond their phony-made-up 2 percent range, they will raise rates to bring down inflation and shoot them back down when inflation stalls.