And the same goes for the times when banks raised interest rates; The Bank of England started raising interest rates in December, the Fed in March and the ECB only in June. But the tone is also different. At the Bank of England, two of nine board members voted against a rate hike, the Fed agreed, but said they will hike rates by a quarter twice, which bodes hopes inflation will clearly come down in the United States.’
Aggressive tone
De Jong calls the ECB’s tone “quite aggressive”. “Lagarde said there will be at least two more 50bp rate hikes, then Bloomberg came in with a report that many policymakers inside the ECB would prefer a 75bp hike.”
Rate hikes have also been very different in terms of financial market reactions. For example, the markets barely reacted to what the Fed did, but even more so at the ECB. “At the ECB, capital market interest rates have risen sharply, while stock markets have fallen sharply.” De Jong calls the ECB’s explanation “more aggressive than expected”. According to him, Lagarde is entering into a kind of battle with the players in the financial markets.
“He actually said, ‘You’re wrong if you think we’re almost done raising too.’ There is a difference of opinion between what financial market players think and what the ECB is planning.”Lagarde has clearly tried to change the minds of the participants,” says De Jong, who thinks this is smart from his point of view of sight.
Partly successful
The ECB believes that we can only keep inflation under control by raising interest rates. This has proved to be partially successful, but not completely.’ For example, the interest rate on 10-year government bonds has risen by 30 basis points, which is a lot, «but it cannot be said that the market is now completely convinced of the ECB’s vision. That disagreement still exists.
Finally, De Jong wonders whether further interest rate hikes are absolutely necessary to bring down inflation now that we are approaching a recession, or if we are already in a recession.