Commentary from the world's largest asset manager, BlackRock. the 'pandering to politics message is interesting:
- The European Central Bank (ECB) is set to lift rates for the first time in over a decade this week.
- Both the ECB and Fed are for now pandering to “the politics of inflation,” or pressure to tame inflation.
But, this is even more interesting, on the soon-t0-be-announced interest rate hike (coming on Thursday this week!):
- We think the ECB will pause its hiking first. Why? The energy crisis means Europe’s growth is likely to stall soon. Higher rates and political turmoil may also send peripheral borrowing costs spiralling.
- Europe is facing the risk of an energy shock-driven recession and periphery stress. That’s why we think the ECB will stop hiking earlier than the Fed.
There is more in the note, this one line summarises the predicament facing the ECB:
- Monetary policy can’t save the day, in our view. The ECB faces some brutal trade-offs to get inflation back down to target.
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Hiking rates into a recession should ensure EUR/USD drops below parity, and plunges further from there.
