ECB Should Shock and Awe With Half-Point Rate Cut
Time to put caution aside to prevent the onset of deflation.
A return to deflation is the single most important development that the European Central Bank must avoid. Which is why I'm advocating for a 50 basis-point deposit rate cut to 3% at Thursday's Governing Council meeting. It’s time to bring out a Federal Reserve-style bazooka. The euro area can no longer dally with neatly orchestrated small-step interest-rate reductions: All the economic warning signs are flashing red.
ECB deposit rates were below zero for a staggering eight years until the post-pandemic inflation surge necessitated rapid monetary tightening. That medicine has evidently worked too well. But things are changing rapidly again, this time to the downside. It would be a crying shame if no lessons have been learned from Europe's lost decade — when it was trapped in a crisis loop of next-to-no economic growth combined with flirtation with deflation, not to mention the persistent prospect of Greece crashing out of the currency union.