2023-09-18 08:56:22
While indecision raged, the European Central Bank spared investor sensitivity by increasing its key rates for the tenth time to 4.5% while warning that the equilibrium point had certainly been reached. In other words, the monetary tightening cycle is coming to an end.
The ECB’s decision was well received by the financial community, as evidenced by the sharp rise in equity markets following Christine Lagarde’s speech. She clarified that the ECB was now waiting to see the effects of its policy before any next decision. We must understand implicitly that rates should remain high long enough to have a negative impact on inflation.
It should also be noted that the ECB expects difficult times in order to stabilize prices. And too bad if this plunges the European economy into recession. In the meantime, growth projections are not great, as evidenced by the following graph:
Did you say dot-plot?
As for American inflation, the latest data came out generally in line with expectations and did not significantly impact the narrative that we detailed HERE. The CPI Core reached 4.3% on an annual basis compared to 4.7% in July while the annual PPI was published online at 2.2%. Weekly jobless claims statistics are also in line with expectations, supporting the “soft landing” theory of the American economy.
If all is for the best in the best of all possible worlds, the week promises to be busy with successive meetings of the Fed and the Bank of England. Suffice to say that investors will still have a lot of work to dissect the language elements inherent to the exercise. If the status quo should however dominate, the new “dot-plot” will allow us to know a little more regarding the positions of each of the members of the Federal Reserve and give some indications on a possible rate cut from 2024. Or not.
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