The ECB is starting to fear that investors are increasingly losing faith in the region's inflation outlook
The report by Bloomberg notes that fears are mounting at the ECB that they risk loss of faith with investors over inflation control. More worryingly so, they fear that it could lead to a self-reinforcing spiral that could force the central bank to dig deeper into its stimulus toolkit in order to reestablish market confidence again.
Citing officials familiar with the matter, the report says that staff at the ECB are worried that "inflation expectations are becoming deanchored".
This is one of the reasons why despite the euro's reprieve after the ECB meeting last week, it may not last the course in the medium to long-term. If you look at the market gauge of long-term Eurozone inflation expectations, it has since fallen to a record low after the ECB and Draghi on Thursday:
If you're unsure of how to interpret that, it basically says that market confidence in the ECB normalising policy amid inflation being able to meet the central bank's target is basically at an all-time low.
