Maybe the ECB has an inside track sometimes, but most of the time it is just waiting for signals from the real economy. ECB chief Christine Lagarde and the bank’s chief economist Philip Lane are blue in the face telling reporters that rate decisions are “data-dependent” and that they themselves don’t know what the terminal point for interest rates will be in the current cycle.The ECB isn’t immune to getting it wrong either. Historically it has made some spectacularly bad calls.
Frankfurt was the last of its peers to increase interest rates, opting for an initial half-point rate hike in July last year, long after the Fed, Bank of England and Bank of Canada had begun a process of monetary tightening.Probably because it is governed by economists, it has always been slower to react and less inclined to submit to market pressures, an accusation often levelled at the Federal Reserve in the US.
The wider tech/financial sector crunch from Meta’s job losses, SVB’s collapse and Credit Suisse’s overnight bailout appear strongly linked to higher interest rates and, in particular, the speed of monetary tightening. But that’s like the chairman of a football club vouching for the manager. We’re programmed to see this as a prelude to a sacking. In this case, de Guindos is most likely right as, in the EU, banks are nowhere near as vulnerable as they were back in 2008. Doubly so in the case of the Irish ones.That said, the financial system seems to have sinkholes that only become visible when something goes wrong. The Bank of England’s recent bond market intervention is a case in point.