Macro Monkey Says
Rates in Paris
And across the whole Eurozone, more accurately.
Feels like every day is JPow this, JPow that, and sometimes it just makes me want to j-pow my head off. So today, let’s check out what’s going on across the pond.
Believe it or not but turns out other countries, and even other continents, have their own central banks too. Headquartered in Frankfurt, Germany, sits one of the most powerful central banks in the world, arguably second only to Mr. Money Printer himself.
The ECB is currently headed by Christine Lagarde, the President of the ECB, who is actually from Paris and tends to strike a more dovish, accommodative tone than the long history of ECB leaders.
Yesterday, however, she and her gang of FOMC-equivalents were anything but dovish. The European Central Bank announced Thursday that the central bank is hiking rates by 50 bps, sticking to their game plan announced in early February despite the looming collapse of one of the continent’s largest, most well-known banks.
Stating, “Inflation is projected to remain too high for too long,” Lagarde made clear that she don’t give af about sacrificing plans to kill inflation once and for all in order to ease the Eurozone’s banking system, and quite honestly, she probably doesn’t need to.
Credit Suisse watched nearly 40% of its assets in the latter half of 2022 as clients fled amid an anticipated collapse. Rate hikes sure won’t help them out, but considering most of the FUD circling the European banking community stems from one now-infamous, San Francisco-based bank that apparently let goldfish run their MBS portfolio, she probably doesn’t have a whole lot of worrying to do.
Across the 20 countries that use the Euro, overall inflation spiked 8.5% in February. Ever since the Russian invasion of Ukraine and globally-observed price accelerations began last Spring, European inflation has tended to outpace the US on an annual basis. Despite this, the rate hikes have been slower and steadier.
Yesterday’s half-point rise brings the ECB rate to 3.5%, still a full point lower than the US lower bound of 4.5% and only the region’s second hike of that degree. Given that context of higher inflation yet slower rate hikes over the past year, the fact that Lagarde and the homies stuck to the 50 bps plan set forth 6 weeks ago is a clear sign that central banks aren’t letting the SVB / CS debacle rattle them too much.
Despite ongoing banking collapses, inflation remains the primary target. Like the US, inflation in the Eurozone has been steadily trending down from peaks that surpassed double-digits, but given the universal 2% inflation target, they’ve still got a lot of work to do.
We’ll find out Wednesday if JPow and the gang here stateside will follow suit in Lagarde’s resolute rate hikes or if Powell can stare down a bond market screaming for him to chill out.
The US isn’t exactly one to follow Europe, and like Atlas holding up the sky, JPow has been holding up the rate hike expectations for seemingly an eternity. See, another 25 bps doesn’t seem so bad anymore, huh?
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