Central banks and inflation: we take the same ones and start over. For many months, and apart from the upheavals linked to the war in Ukraine, the markets have remained monopolized by inflationary issues and the resulting reactions of central banks.
It was the ECB which therefore opened the ball for the back-to-school monetary policy meetings (before the Fed and the BoE follow next week) in the context of inflation heading towards double digits in the euro zone. Thus, despite the deterioration in the economic outlook characterized by lower growth forecasts for 2022 and 2023 (revised downwards by the ECB from -0.4% and -0.2% respectively to 2.8% and 2.1%), the ECB continued to tighten monetary policy by raising, as expected, its three key rates by 75 bps. The unanimous decision confirms the seizure of power by the hawks within the European institution but also their desire to restore the credibility of the ECB in its ability to fight against inflation. The movement will therefore continue at the next meetings to make the key rates converge towards the "neutral rate", a neutral rate which seems to be changing over the weeks since François Villeroy de Galhau, the Governor of the Banque de France, now assesses it at 2% against 1.5% at the start of the summer. However, the extent of future movements is still uncertain and will depend on the next inflation figures. If François Villeroy de Galhau and Klass Knot (the Governor of the Bank of the Netherlands) tried to temper the ardor of investors ("giant steps have not become a habit") by specifying that a new increase of 75 bps was not yet acquired for the next meeting in October, this is not necessarily the case for Joachim Nagel, the President of the Bundesbank, for whom “other significant steps will have to be taken”. The overall message, however, remains clear: despite a possible recession in Germany for the second quarter of 2022 and for Europe in 2023, the fight against inflation remains the priority. The ECB should also begin, from the next meeting in October, to discuss reducing the size of its balance sheet (quantitative tightening). If Christine Lagarde has undertaken to reinvest the PEPP maturities until the end of 2024, the ECB could, on the other hand, decide to no longer reinvest the maturing APP bonds. Finally, concerning energy issues, the President of the ECB recalled that it was up to the States to support the exposed companies by providing them with the necessary liquidity while no decision was taken on Friday during the meeting between European ministers. Energy. While several solutions have been put forward to combat the energy crisis, the sticking point remains the cap on the price of Russian gas.
On the United States side, the publication of the inflation figure for the month of August is scheduled for tomorrow and will be followed with great attention. While a downside surprise would favor the continuation of the “risk-on” sentiment that began last week, this should not call into question the Fed's next moves, which could just as quickly signal the end of recess.