ECB’s Lagarde Needs To Choose Her Words Carefully
It’s a delicate time and she needs to push back on rate-hike expectations while not dispelling them completely.
Christine Lagarde, president of the European Central Bank, in December 2021.
Photographer: Andreas Arnold/BloombergThursday's European Central Bank meeting was supposed to be something of a sleeper. The December review had already clearly laid out its most significant decision: the gradual replacement of its gargantuan pandemic support program. However, persistent inflation and political events in Italy are unsettling the usually calm waters of the European government bond market.
Some soothing words are needed from President Christine Lagarde at the press conference to play down expectations for any interest rate hike this year. The markets have already figured in 20 basis points by yearend. The governing council needs to navigate this tricky situation with care because failure to tamp down those expectations now could easily lead to an unnecessary crisis later. Lagarde will not want to extinguish all pricing in of higher rates for sometime next year but she needs to push back carefully but firmly on more immediate and overblown market fears. It may be timely to issue a subtle reminder of the considerable arsenal of the ECB’s QE bond-buying power.