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Wunsch: View of 3% Terminal Rate May Be Optimistic

ECB
  • Speaking at the Geneva Graduate Institute, Pierre Wunsch notes that the view of a terminal rate at 3% (currently priced for 2H23) may be optimistic after the first 200bps of hiking to a deposit rate of 1.5% were a no brainer.
  • Other BBG headlines:
    • Any further CPI rise will impact wages in next years, will see a new normal in next years for wages
    • Expectations have broadly remained anchored but consumer inflation expectations have risen a lot
    • Base case is a technical recession but if recession is deep, there may be inflation.
  • It follows Bundesbank's Nagel saying this morning that the ECB must continue rate hikes even if it hurts growth.

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