{"id":19630,"date":"2022-02-10T02:54:14","date_gmt":"2022-02-10T00:54:14","guid":{"rendered":"https:\/\/bestinsurance.gr\/a1\/?p=19630"},"modified":"2022-02-10T02:54:14","modified_gmt":"2022-02-10T00:54:14","slug":"more-ecb-officials-distrust-inflation-forecast-amid-hawkish-turn","status":"publish","type":"post","link":"https:\/\/bestinsurance.gr\/a1\/archives\/19630","title":{"rendered":"More ECB Officials Distrust Inflation Forecast Amid Hawkish Turn"},"content":{"rendered":"
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  • Unexpectedly high data outcomes are unsettling policy makers<\/span><\/li>\n
  • Chief economist defends staff modeling, projection process<\/span><\/li>\n<\/ul>\n<\/section>\n
    By\u00a0Jana Randow,\u00a0Carolynn Look\u00a0and\u00a0Alexander Weber<\/span><\/p>\n

    (Bloomberg) —\u00a0<\/span>A growing number of\u00a0European Central Bank\u00a0policy makers are losing faith in the institution\u2019s current inflation forecasting, emboldening their\u00a0shift toward hiking\u00a0interest rates later this year, according to officials with knowledge of the matter.\u00a0<\/span><\/section>\n

    While Chief Economist\u00a0Philip Lane\u00a0robustly defends the\u00a0ECB\u2019s projections\u00a0and insists his staff\u2019s modeling is reliable and state-of-the-art, several governors are cautioning against depending too much on them in a quickly changing, uncertain environment where the recent run of price increases has persistently confounded expectations.\u00a0<\/span><\/p>\n
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    Such doubts on the forecasting process emerged in multiple conversations with officials on the discussions behind last week\u2019s surprisingly hawkish shift unveiled by President\u00a0Christine Lagarde. They spoke on condition of anonymity because ECB deliberations are private.\u00a0<\/span><\/p>\n

    The euro extended gains, trading up 0.3% at around $1.1445. Bund futures trimmed an advance in thin trading after the European session.<\/span><\/p>\n

    Lagarde\u2019s pivot, taken against the backdrop of intensifying global tightening, has set the scene for a more hawkish decision in March, when policy makers may consider how quickly to stop bond purchases.\u00a0<\/span><\/p>\n

    New forecasts will take prominence at that meeting, with the ECB\u2019s last set of projections from Dec. 16 obsolete after another surge in energy and two record inflation readings since then, including a\u00a05.1% reading in January. The last outlook was for an overall average of 3.2% of this year.\u00a0<\/span><\/p>\n

    Lagarde\u00a0said Monday\u00a0those forecasts will help the Governing Council to \u201cbetter appraise the implications\u201d of current inflation readings on the medium-term outlook.<\/span><\/p>\n

    A foretaste of the size of the likely upgrade for the path of consumer prices may emerge on Thursday as the European Commission issues\u00a0new projections. Draft\u00a0forecasts\u00a0seen by Bloomberg show consumer prices will advance by an average 1.7% in 2023 after surging 3.5% in 2022.<\/span><\/p>\n

    As chief economist, Lane is the Executive Board member responsible for the preparation and presentation of the ECB\u2019s forecasts. His role also entails proposing any course of action at Governing Council decisions.\u00a0<\/span><\/p>\n

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    Doubts on the ECB\u2019s modeling capabilities form one line of attack on his relatively dovish view that policy makers shouldn\u2019t flinch on inflation that isn\u2019t about to spiral out of control, officials say, observing that his position is gaining less and less traction among colleagues.\u00a0<\/span><\/p>\n

    Instead, officials cite growing concern among Governing Council members, well beyond the typical hawks such as the\u00a0Germans\u00a0and the\u00a0Dutch, that prices won\u2019t undershoot the 2% target next year predicted in existing staff forecasts, and that such projections might prove an unreliable tool in a rapidly changing environment.\u00a0<\/span><\/p>\n

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    What Bloomberg Economics Says…<\/span><\/h3>\n

    \u201cOur base case is that the ECB signals a hike will come at year end, perhaps reinforced by plans to taper asset purchases a little faster. There\u2019s a danger, albeit a small one, that doves on the Council cave into pressure from the hawks after taking stock of the inflation numbers and how financial markets have priced in aggressive hiking cycles in the U.S. and the U.K.\u201d<\/span><\/p>\n

    –Jamie Rush\u00a0and\u00a0Maeva Cousin. For the full report, click\u00a0here<\/span><\/p><\/blockquote>\n

    Lane has insisted that it takes a model to beat a model, a hint that any critics aren\u2019t offering constructive alternatives. He does also acknowledge an evolving economic landscape where unemployment is falling faster than anticipated and inflation expectations are stabilizing.\u00a0<\/span><\/p>\n

    The Harvard-educated chief economist, seen by many observers as a torch-bearer of continuity for the stimulus-focused policy of former ECB President\u00a0Mario Draghi, still reckons the ECB needs more time to form a policy judgment, with a potential conflict in Ukraine and its impact on energy among factors to watch.\u00a0<\/span><\/p>\n

    His own policy prescription, rather than the aggressive interest-rate increases now predicted for later this year by economists at banks including Goldman Sachs Group Inc. and also anticipated by\u00a0investors, would favor more gradual \u201cnormalization.\u201d\u00a0<\/span><\/p>\n

    That\u2019s a view that Bank of Spain Governor\u00a0Pablo Hernandez de Cos\u00a0shared on Wednesday, while Bank of France Governor\u00a0Francois Villeroy de Galhau\u00a0on Tuesday said financial markets may have overreacted to Lagarde\u2019s pivot, a suggestion that they have priced in too much tightening.\u00a0<\/span><\/p>\n

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    Others appear more sanguine about investor views. Bundesbank President\u00a0Joachim Nagel\u00a0told Zeit that a rate increase is possible this year, while Dutch central bank chief\u00a0Klaas Knot\u00a0sees a 25 basis-point move as soon as the fourth quarter. \u00a0<\/span><\/p>\n

    Lagarde herself talked of a \u201cgradual\u201d adjustment on Monday. Regarding the forecasts, she insisted last week that she has \u201cfull confidence\u201d in staff making \u201csensible, reasonable, rational assumptions.\u201d At the same time, she stressed that policy makers aren\u2019t tied to projections and that \u201cthere is an element of discretionary judgment\u201d in their decisions.<\/span><\/p>\n

    ECB Executive Board member\u00a0Isabel Schnabel\u00a0echoed Lagarde\u2019s view in a post during a Twitter discussion on Wednesday.\u00a0<\/span><\/p>\n

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    In a reaction to the concerns of Governing Council members about the forecasting process reported in this story, the ECB provided a statement via a spokesperson.\u00a0<\/span><\/p>\n<\/div>\n<\/div>\n

    \u201cThe ECB\u2019s\/Eurosystem\u2019s macroeconomic projections are conducted and owned by the ECB and by the Eurosystem staff. These provide a key input into Governing Council meetings, where decision-makers assess the outlook for the economy and inflation and formulate their own views on the risks to outcomes for inflation and growth. As any forecast, they are both model-dependent and sensitive to the incoming data. The Governing Council will receive fresh staff projections at the 10th March meeting, which will include all information which will have become available after the December meeting.\u201d<\/span><\/p><\/blockquote>\n<\/section>\n

    –With assistance from\u00a0James Hirai,\u00a0Greg Ritchie\u00a0and\u00a0Jorge Valero.<\/span><\/p>\n<\/section>\n<\/div>\n
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    Unexpectedly high data outcomes are unsettling policy makers Chief economist defends staff modeling, projection process By\u00a0Jana Randow,\u00a0Carolynn Look\u00a0and\u00a0Alexander Weber (Bloomberg) —\u00a0A growing number of\u00a0European Central Bank\u00a0policy makers are losing faith in the institution\u2019s current inflation forecasting, emboldening their\u00a0shift toward hiking\u00a0interest rates later this year, according to officials with knowledge of the matter.\u00a0 While Chief Economist\u00a0Philip<\/p>\n","protected":false},"author":1,"featured_media":19633,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[1],"tags":[],"class_list":["post-19630","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-1"],"jetpack_publicize_connections":[],"_links":{"self":[{"href":"https:\/\/bestinsurance.gr\/a1\/wp-json\/wp\/v2\/posts\/19630","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bestinsurance.gr\/a1\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bestinsurance.gr\/a1\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bestinsurance.gr\/a1\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/bestinsurance.gr\/a1\/wp-json\/wp\/v2\/comments?post=19630"}],"version-history":[{"count":1,"href":"https:\/\/bestinsurance.gr\/a1\/wp-json\/wp\/v2\/posts\/19630\/revisions"}],"predecessor-version":[{"id":19635,"href":"https:\/\/bestinsurance.gr\/a1\/wp-json\/wp\/v2\/posts\/19630\/revisions\/19635"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/bestinsurance.gr\/a1\/wp-json\/wp\/v2\/media\/19633"}],"wp:attachment":[{"href":"https:\/\/bestinsurance.gr\/a1\/wp-json\/wp\/v2\/media?parent=19630"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bestinsurance.gr\/a1\/wp-json\/wp\/v2\/categories?post=19630"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bestinsurance.gr\/a1\/wp-json\/wp\/v2\/tags?post=19630"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}