Will the ECB soon stop raising its key rate? Some governors want it.
Penultimate rate hike for the ECB?
The ECB raised its key rate for the tenth time in a row. The borrowing rate of private banks from the ECB is now 4.50%.
The ECB’s new macroeconomic projections expect average inflation of 5.6% in 2023, then 3.2% in 2024 and 2.1% in 2025.
There is reason to doubt these forecasts given that oil is heading towards $100 per barrel. The latent war between NATO and Russia in Ukraine should not help matters this winter.
Christine Lagarde has also made it clear that “Upside risks to inflation include further increases in energy and food costs.”
Overall, the President of the ECB notes that “inflation continues to fall”but still waiting “that it remains too high for too long”.
The important sentence of communicated of the ECB was:
“We believe that interest rates have reached levels which, if sustained long enough, will contribute substantially to inflation returning to our target in due course. Our future decisions will ensure that interest rates are set at sufficiently restrictive levels for as long as necessary. »
Asked about the governors’ vote, Christine Lagarde conceded the lack of unanimity. If a “solid majority” has taken hold, these dissensions suggest that monetary tightening is coming to an end.
Much will ultimately depend on what the United States does. J.P. Morgan no longer anticipates further rate hikes from the Fed. Goldman Sachs For its part, it expects rates to fall again next summer.
And how could it be otherwise when we know that the annual amount of interest paid by the US government has now reached 800 billion dollars. This is more than the defense budget.
Rates cannot stay high for long. The debt is too big. You only need to look at Japan to be convinced.
The physical limits to growth unfortunately promise a slowdown in growth. It will become more and more difficult to repay debt, without taking on more debt…
This headlong rush will force the Fed and the ECB to print money again and lower rates. The reversal of monetary policy will be the main domino of the next wave of bitcoin rise.
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