Lagarde's half-hearted pushback isn't doing the trick
In her press conference yesterday, Lagarde mentioned that:
Our analysis certainly does not support that the conditions of our forward guidance are satisfied at the time of liftoff as expected by markets, nor anytime soon thereafter.
That was her trying to push back against the market and rate expectations. However, perhaps the key remark is that she mentioned it wasn't in her place to say exactly whether markets were wrong with their predictions.
Euro area bond yields - especially peripheries - surged higher in the aftermath and we're seeing more of that today as yields in Italy and Spain gap higher:
Making matters worse is that markets are now pricing in a 20 bps rate hike by the ECB in October 2022 as compared to the previously December 2022 pricing before the ECB meeting yesterday. Yikes.
I mean let's be real. This isn't going to take place. The ECB is in no position to be tightening policy to that extent i.e. hiking rates so this certainly does not sit well with how they intend to guide markets in general.
The gap between the closely watched 10-year Italian and German bond yields have surged to its highest since May and that will draw the ECB's attention surely.
