Relative to the Fed’s dramatic pivot yesterday and the Bank of England’s rate hike today, the European Central Bank remains in the slow lane.
As expected, the ECB announced today that it will reduce its net asset purchases step-by-step next year. But the ECB left the question when it will end these purchases and start to raise rates wide open. While the ECB raised its staff projection for inflation in 2022 by a record amount, from 1.7% to 3.2%, it still projects a slowdown to 1.8% in 2023 and 2024.
For the two years that matter for its medium-term outlook, the ECB thus still expects inflation to fall short of its 2% target. Taken at face value, this suggests that the ECB does not (yet) see a need to raise rates within the next two years. Once again, the ECB emphasised that Eurozone inflation is mostly transitory, for instance by emphasising that energy prices accounted for more than half of November’s 4.9% inflation…
