The battle against inflation is entering a new intense phase, with Jerome Powell of the Federal Reserve and Christine Lagarde of the European Central Bank expressing a “hawkish” stance and hinting at possible interest rate hikes. This perspective has already generated uncertainty in the markets, which, after the inflation drop to 2.9% in September, expected a possible rate cut by the Eurotower as early as April.
Inflation: new perspectives from the ECB
Christine Lagarde has shared Powell’s viewpoint, emphasizing that inflation in the eurozone could increase in the coming months. However, she clarified that ECB rates would remain at the current level for several quarters, aiming to bring price growth back to 2%. This statement suggested that the ECB is adopting a cautious approach to inflation management.
Medium-Term Projections
The ECB president warned that rapid disinflation could soon end, with price growth potentially accelerating in the short term, partly due to the elimination of year-on-year base effects related to high energy prices.
“We anticipate a revival of higher numbers in the future, and we should expect it,” Lagarde stated during a Financial Times event. She explained that even if energy prices were to remain reasonably stable, the base effect is expected to dissipate in January and February. The ECB’s strategy is based on the belief that by keeping rates long enough, the 2% target will be reached in the medium term.
Inflation: uncertainty in Markets and Economic Impacts
These statements have had a significant impact on the markets, freezing expectations of an imminent rate cut. In an uncertain climate that does not seem to promise improvements in the coming months, industrial production is retracting, keeping loan and mortgage rates high. Families and businesses struggle to cope with this situation.
The latest statistics from the Bank of Italy reveal that loans to the private sector decreased by 3.6% on an annual basis in September. Loans to households declined by 0.9%, while those to non-financial companies dropped by 6.7%. Additionally, private sector deposits decreased by 3.5%, while bond issuance grew by 18.4%.
Inflation: the Future of Interest Rates
Lagarde stated that it will be necessary to maintain rates at 4% for at least two quarters to significantly contribute to achieving the 2% inflation target in the medium term. However, she specified that this will depend on geopolitical conditions and the absence of new shocks.
In conclusion, the fight against inflation continues, with central banks ready to take measures but maintaining a cautious approach to avoid excessive shocks in the economy. The future of interest rates remains uncertain, with direct consequences on global financial conditions.
