As we know, central banks are totally helpless in the face of rising inflation. They have therefore been forced to abandon, for several months now, forward guidance (indication of future monetary policy in order to "guide" investors' expectations) in favor of a more data-dependent approach (rapid adjustment of policy monetary policy based on new macroeconomic publications). However, despite this asserted approach, the central bankers could not refrain from hinting at future rate hikes in order to anchor investors' expectations as much as possible, at the risk of finding themselves in contradiction with their own discourse.
Thus, after Jerome Powell who had asserted that rate hikes of 75 bps were not "actively considered" (were they considered passively?) before backpedaling a few weeks later in the face of inflation figures in the United States higher than expected. Christine Lagarde also paid the price for her risky communication. However, the mass seemed to be said for the ECB's July monetary policy meeting, the European institution having prepared the ground at the June meeting: "the Governing Council intends to increase the key interest rates of the ECB by 25 bps at its July monetary policy meeting”. Decision to come reiterated a few weeks later in Sintra by Christine Lagarde despite the call of the more hawkish members to do more and faster.
As for the Fed, inflation figures well above expectations in the euro zone therefore prompted the ECB to “strike hard” and raise its key rates by 50 bps to bring them back to 0%. If the image for the communication of the ECB is disastrous, the decision remains logical in the bottom as the European central bank is behind its American and English counterparts. The ECB has therefore chosen to accelerate monetary tightening without changing the point of arrival (the “neutral rate”), which Christine Lagarde by her own admission does not know… The ECB is therefore moving forward but without really knowing where. This increase is in any case a concession to the most hawkish members having made it possible, at the same time, to snatch the TPI (Transmission Protection Instrument), a new tool making it possible to combat excessive rate differences between countries in the euro zone. . In practice, this new mechanism remains rather vague: the conditions are not very restrictive and its unlimited activation is at the discretion of the ECB. Maintain the vagueness to avoid speculation? In any case, the interest rate differential between Germany and Italy has not returned to its highest levels of the year, while Italy is entering a new phase of political uncertainty following the resignation of Mario Draghi and the holding of new elections in September.
While the activity indicators for the month of July came out, contrary to expectations, in a contraction phase in the euro zone (manufacturing and composite indices), the task of the ECB will become more complicated and nothing says that it will be able to continue its rate of rate increase. What was taken in July is therefore no longer to be taken...
