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Money ECB Guidance alone will not boost inflation expectations

13:35  27 july  2021
13:35  27 july  2021 Source:   pressfrom.com

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(Bloomberg) - the monetary policy decision-makers of the European Central Bank, according to informed circles, assume that their new pre-shortening of inflation expectations could need to work. In his strategy review, the Council also discussed experiences of the Fed, which can expect that, it said.

In the US, the expansion expectations had slowly slowed down after the central bank had passed average inflation goal last August and declared its willingness to exceed 2% exceeding the mark. The inflation expectations began to accelerate until the designated Biden government began to discuss new economic power packages.

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Fed took a while to foster higher inflation expectations © Bloomberg Fed Took A While To Foster Higher Inflation Expectations

The US inflation expectations won again, when the Fed kept its monetary policy loose after increasing demand the prices were attracted by more than 2%. Since May, they have returned since Fed representatives began to take the theme tapering on the agenda.

Even in the euro area, there was hardly any impact on inflation expectations and bets on interest rate increases after the ECB had raised its inflation target and reaffirmed its obligation to keep the credit costs low.

Market-based inflation expectations haven't changed much since latest ECB actions © Bloomberg Market-Based Inflation Expectations Haven't Changed Much Since Latest ECB Actions

The Fed experience is likely to help with the ECB's concerns about the largely ambivalent response of investors and economists in the past week. Analyst reports described the new language and the press conference of President Christine Lagarde mostly as a Dovish, but little specifically.

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"It is difficult to derive a significant impact on the short-term growth and inflation dynamics from the promise to raise interest rates a bit later," explains Oliver Rakau, an economist at Oxford Economics. "We continue to have the opinion that a short-term monetary policy response, such as an immediate increase in quantitative easing, would benefit the credibility of the new strategy."

An ECB spokesman rejected it to comment on the consultations of the ECB Council. In the review of the central bank strategy, the inflation target of "under, but close to 2%" increased to 2%.

In monetary policy decision Two weeks later, decision-makers said that key interest rates will remain at the present or a lower level until the Council determines that the inflation rate reaches 2% significantly before the end of its projection period. This period can extend up to three years in the future.

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The inflation projections would have to correspond to the target value until the end of the forecast horizon and be supported by a "sufficiently advanced" underlying price dynamics. Bundesbank boss Jens Weidmann and Belgium's Pierre desire rejected this as they see these specifications as a too long-term commitment.

The view of Bloomberg Economics ...

"The achievement of this goal remains in far away and - without additional monetary support - it sounds like little more than wishful thinking"

-david Powell and Maeva Cousin. Link to your analysis

The inflation boost by the increased government spending in the US is likely to be water on lagardes. She has repeatedly prompted European governments to retire the pandemie hilfe to early. The ECB boss said last week that "an ambitious, targeted and coordinated fiscal policy should continue to complement monetary policy."

While a common fiscal assistance with the 800 billion euros are undergoing European Union 's building funds, governments will invest these funds over several years. EU rules for debt burden and deficits are currently exposed, but only by the end of next year. In some countries, politics already begins to talk about the need to break the borrowing.

If the Eurozone should follow the US logic, this restraint could delay the achievement of the 2% inflation target and thus undermine the credibility of the new strategy and leadership of the ECB.

"I believe the ECB will be quite different to the test," says Allianz economist Patrick Krizan. "The Fed was put on the sample at the top, the ECB is being tested at the bottom."

Headline in the original:

Fed History Suggests ECB Won't Boost Inflation On Guidance Alone

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usr: 4
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