Officials of the European Central Bank (ECB) denied claims of a pending “dovish pivot” that would lead the bank to slow its pace of interest rate hikes or stop them entirely.

Instead, members of the central bank’s rate-setting committee said that rates could rise more than high enough to shrink consumer demand and weaken the region’s economy in the ECB’s struggle to break inflation.

The comments came as ECB policymakers pushed back against criticisms by political leaders that higher rates will harm economic growth.

Higher rates are “considered by many to be a rash choice,” Giorgia Meloni, Italy’s new prime minister, said last month. Emmanuel Macron, France’s president, complained that the bank is “smashing demand” with its rate

The bank boosted its key rate from 0.5 percent to 1.5 percent since June and is expected to add at least another half-point next month.

Joachim Nagel, president of Germany’s Bundesbank, said in a public statement that he will make every effort to see that the bank will “press ahead with monetary policy normalization, even if our measures dampen
economic growth.”

“In a situation where monetary policy lags behind the curve, the macroeconomic costs would be significantly higher,” he added, meaning that letting inflation run would harm the economy more than higher interest rates will.

Germany’s inflation reached a 70-year record of 11.6 percent in October and will remain above 7 percent next year, Nagel predicted.

Higher rates will “reduce aggregate demand, both consumption and investment,” ECB vice-president Luis de Guindos told Politico, “but it’s the only possible way forward because doing nothing would be much worse.”

The decision about the next rate increase depends on whether inflation continues on the path that raised it to 10.7 percent across the Eurozone in October, moving further and further from the ECB’s 2-percent inflation target.

A mild recession in the Eurozone will not be enough to break inflation’s back, ECB president Christine Lagarde said in a press statement earlier this month.

She does not expect a recession for the region, but if one comes, the effect will not be enough to enable the bank to sit back and let the recession solve inflation by itself, she added.

TREND FORECAST: The arrogant losers are in control of a country near you.

Over in Europe, the central bank mistress, Christine Lagarde declared last July, as inflation was rising that the European Central Bank (ECB) will keep interest rates at record-low negative levels until inflation settles at the
bank’s 2-percent target “well ahead of the end of [our] projection horizon and durably.”

Back then we had accurately forecast that despite inflation spiking, “Europe’s dependence on the central bank’s monetary methadone will only delay a reckoning that awaits when the ECB returns interest rates to positive territory.

“However, with the COVID War 2.0 accelerating, it appears it will be years before they raise rates. And, as we have detailed, while record low interest rates benefit the Bigs so they can borrow money cheaply and buy up the world with mergers and acquisitions, the peasants of Slavelandia, once able to put money in savings accounts in banks and get interest, have nowhere to place extra earnings… other than to gamble in the markets.”

TRENDPOST: As we noted in “End to ECB’s Bond-Buying Program Will Crimp Debt Market” (14 Jun 2022), Europe’s central bank is stuck between two bad alternatives.

On one hand, it needs to cool inflation and all it can do is raise interest rates and stop buying bonds. 

On the other, taking those steps will push the Eurozone’s economy closer to, if not deeper into, a recession—while doing very little to decrease inflation.

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