BNY Mellon: Market Pricing For The ECB Remains Adequate

BNY Mellon write “the ECB is often criticised for setting policy according to the needs of a subset of core Eurozone economies, though in its defence this is the nature of a currency union which remains imperfect in many ways. However, applying the same approach to a subset of Eurozone economic sectors, especially one whose contribution to growth value-added is low (by President Lagarde’s own admission), could prove far more damaging.”

• “Either way, central banks need to get ahead of inflation and inflation expectations. Perhaps scarred by the experience of ‘transitory inflation’ post-pandemic, it is possible that policymakers are inclined to wait for full confirmation of inflation coming down before acting. Yet, this approach risks learning the wrong lessons as well: by the time disinflation becomes well-anchored, it could prove similarly difficult to dislodge.”
• “Market pricing for the ECB remains adequate, in our view. Even if doing so is an effort to tame the euro, ECB members may need to stop pushing back so aggressively against expectations. President Lagarde has an opportunity to set that tone on Thursday.”