The hawk continues to fly high, using monetary policy jargon. The President of the European Central Bank (ECB), Christine Lagarde, yesterday reaffirmed the concept of "higher for longer" interest rates.
In statements at an event organized by , the French ruled out that the price of money should fall soon and made it clear that there will be no interest rate cuts in the next two quarters: it is the hard policy of the hawks, compared to the more conciliatory of the doves .
"Keeping them for a while will help lower inflation," he said. "We are at a level where we believe that, if it is maintained for long enough - and this long enough time is not trivial -, it will take us to the goal of 2% in the medium term", he pointed out.
At the beginning of the week, the president of the Bundesbank, Joachim Nagel, said that it was too early to talk about cutting rates, since inflation is a "very greedy beast", difficult to beat.
But time is passing and pressure is growing for the ECB to make a gesture of monetary relaxation, now that the eurozone is flirting with recession and registering anemic economic growth (GDP contracted by 0.1% in the third quarter).
Especially since inflation in the Eurozone is gradually approaching acceptable levels. From the highs of 10% that were bordered after the war in Ukraine and the energy crisis, in October the CPI fell in the Eurozone to 2.9% compared to 4.3% registered in September. It is the lowest level since July 2021 and it should not be forgotten that the ECB's target is 2%. In addition, for the first time since the rise in inflation and the change in the cycle, the level of interest rates in the eurozone (4%-4.5%) is already higher than the CPI.
But the president of the ECB is suspicious. In particular, he fears that energy costs may rise due to tensions in the Middle East. "We must really monitor the price of energy in the future", warned Lagarde. "We must not assume that this respectable general figure of 2.9% is something that should be taken for granted and for a long time." For this reason, Lagarde ruled that the reduction in interest rates will not occur "in the next two quarters", and added that "enough is enough".
"Even if central banks believed that rates could be cut next year, it would be unrealistic to expect them to say so at this point, as it would confuse and undermine the message that rates need to be higher for longer" , commented analyst Craig Erlam, from Oanda, in a note yesterday.
The reality is that, despite the uncertainty and the restrictive monetary policy, the major stock markets are still accumulating gains since the beginning of the year. Investors' long-term expectations are said to be not as harsh as those of central bankers, and they are confident that rate cuts will not be long in coming. So, the Eurostoxx50 gains almost 9% annually, and the German Dax, more than 8%. In the United States, the SP500, 15%, and the Nasdaq Composite, a spectacular 32%.
"I'm surprised at how busy the markets are", confided this week a manager from Barcelona. "With two wars, in the Ukraine and the Middle East, and the geopolitical crisis, not only are the stock markets holding up, but the real economy is showing resilience, with unemployment still near historic lows in both the eurozone as in the United States".
“Whatever your view of the future monetary policy of the Federal Reserve or the ECB, what we can say with certainty today (the word is too strong, we agree) is that interest rate hikes are over, as inflation has begun to fall and economic growth has begun to slow. Therefore, a pause will prevail”, write the Mirabaud analysts.
In his opinion, the cuts could be brought forward in the event of an increase in unemployment, a drop in consumption or geopolitical crises. Falcons may not rest?
