Christine Lagarde tries again: the number one of the ECB tries again to dilute the fear of runaway and lasting inflation that it can escape its control, as well as the control of the other central banks of the world. On the occasion of her hearing in the European Parliament, Lagarde returned today to reassure the euro area, by now resorting to clichés that some have equated for quite a while to a broken record.
From Germany AD Deutsche Bank appeals to central banks
In the same hours, from Germany, a clear appeal came to the central banks to make a move: the appeal was launched by Christian Sewing, CEO of Deutsche Bank, the first German bank, ergo the first bank in the country that has always been terrified of the specter of inflation.
Speaking at a conference dedicated to banks, the CEO made it clear that he did not share the assumption of the institutions responsible for monetary policy that the nature of inflation would be temporary:
“I believe that monetary policy must take countermeasures, better sooner than later. The alleged panacea of recent years – low interest rates in an environment of seemingly stable prices – it has lost its effect, and we are now coping with what is side effects“.
“In a nutshell – continued Sewing – the more time the central banks fail to adopt countermeasures, the more the consequences of this ultra-accommodative monetary policy they will become difficult to solve “.
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Deutsche Bank CEO added that, based on conversations with his clients, he himself is skeptical about the presence of a alleged monetary stability.
“(Customers) are all preparing for an inflation environment that will remain high for a longer period of time. And we know what this means: it means that if inflation expectations rise, at some point inflation goes up too. Market participants they are anticipating a price increase. And this will also have an impact on wage bargaining ”.
But Lagarde went on her way, defending the decisions and the outlook of the ECB:
“We still believe that (euro area) inflation will moderate its pace next year, but the time it will take will be longer than initially expected,” he said at the hearing. European Parliament.
Continuing: “With the recovery continuing and supply chain bottlenecks easing, we can expect that pressures on the prices of goods and services will normalize “. Among other things, “there are indications of a significant drop in energy prices in the first half of 2022”.
Of course, “the duration of the supply limits remains uncertain and is likely to persist for several months, and then gradually slow down over the course of 2022”.
ECB, Lagarde: unlikely rate hike conditions centered in 2022
In any case, the Eurotower number one stressed, “an inappropriate tightening of financing conditions is not desirable, as it would represent an unjustified obstacle to recovery”. And “it’s very unlikely that the conditions for a rate hike (in the euro area) are met in 2022“.
Lagarde’s caution, as well as Jerome Powell & Co’s, is explained by the difficulty of central banks in coming up with reliable forecasts in a world whose growth has been in the hands of Covid-19 for two years now.
In fact, no one can exclude a priori the return of a flare-up of infections from Covid-19 which, in fact, is manifesting itself in different parts of the global economy. Consequently, no one can calculate the damage that the euro area economy and the global economy are doing they might still suffer, in the event that new lockdown measures are implemented.
So why withdraw the various monetary bazookas?
However, they oppose this reasoning the hawks of the central banks and also bankers of the caliber of Sewing, who fear that central banks have lost control and are underestimating the plague of inflation.
However, Lagarde still held the point today:
“Even after the expected end of the pandemic emergency, it will be important that monetary policy – including the appropriate recalibration of asset purchases – support the recovery throughout the euro area and the sustainable return of inflation to our target “.
Also because, despite the record liquidity injected into the euro area, the ECB still estimates that inflation, in the medium term, will be less than 2%.