Confirmed: ECB Accounts reveal growing concerns over upside inflation risks
The European Central Bank (ECB) released the accounts of its latest monetary policy meeting on Thursday, revealing growing concern among policymakers over persistent inflationary risks. The discussions show a consensus within the Governing Council that the risks surrounding the inflation outlook are skewed to the upside relative to the ECB staff's baseline projections.
The accounts indicate that headline inflation is expected to rise further over the summer and remain well above the 2% target through the first half of 2027. This outlook comes despite the projections already embedding almost three 25-basis-point interest rate hikes.
Policymakers also noted that the outlook could prove even more challenging if energy prices do not decline in line with futures market expectations. Under that scenario, above-target inflation would likely become considerably more persistent.
The discussions nevertheless suggest that Governing Council members expect the current energy shock to have a shorter-lived impact than the previous episode. However, they also warned that firms and workers are likely to react more quickly to rising prices this time, as inflation has become more prominent in economic decision-making.
The accounts further highlight that the tightening in financial conditions since the outbreak of the war has so far had only a limited dampening effect on the economy. At the same time, some members argued that the recent increase in long-term interest rates and tighter bank lending standards should gradually reduce credit demand, weigh on investment and weaken economic momentum.
Finally, policymakers agreed that the ECB should maintain neutral communication. They emphasized that it should neither suggest that the latest decision marks the beginning of a sequence of rate hikes nor imply that it is a one-off move.
The Euro (EUR) showed little immediate reaction to the release. EUR/USD continued to trade in positive territory on Thursday, gaining 0.16% on the day to trade near 1.1435 at the time of writing, suggesting that the main messages had already been largely priced in by market participants.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
You may also like
Wall Street giants collectively raise rate hike forecasts, US Treasury futures continue to fall, gold drops over 1% to break 4000
After the US October CPI exceeded expectations, Goldman Sachs and Nomura added a forecast for an interest rate hike in March next year, while Deutsche Bank included a forecast for a rate hike in January next year. Currently, the market has fully priced in a 25 basis point rate hike in December, with a 13% probability for a 50 basis point hike. On Wednesday, the US Treasury spot market was closed, but Treasury futures continued to fall, with corresponding yields rising by about 2 to 4 basis points, and spot gold came under pressure, dropping by 1.1%.
No Need to Worry About the Cooling Down of AI Data Center Construction? The US Import Boom Is Unlikely to Subside in the Short Term, Real Impact May Come in 2029
It takes an average of 4.8 years from finalizing investment to starting construction of a data center project, and an additional 2.6 years from construction start to becoming operational. Servers usually cannot be installed until after the building structure and racks are completed. For trade partners such as Taiwan (China), South Korea, and Mexico who rely on US data center supply chain demand, the inertia in construction timelines provides at least a one- to two-year buffer for future exports.
Federal Reserve Major Debate: When Should the Tenure of “Number Three” Williams End?
The main point of contention is whether Williams should step down in June 2028, upon completing a full 10-year term, or in June 2027, when he reaches the mandatory retirement age of 65. Analysts point out that the Federal Reserve Board holds ultimate discretion; if he leaves early, Fed Chair Waller would be able to assert greater control over the appointment to this critical position. However, forcing Williams to shorten his term could easily be interpreted as political manipulation. Williams himself is expected to serve until June 2028.
Crypto prices
More
