Englund

With euro money supply turning negative, the risks now are that the ECB has blundered straight into a stagflationary trap. The memory of 2011 still resonates when the Jean-Claude Trichet-led ECB raised rates twice, ignoring the ramifications from the global financial crisis, and precipitating a deep downturn in the euro economy. Marcus Ashworth Bloomberg 14 september 2023 https://www.bloomberg.com/opinion/articles/2023-09-14/christine-lagarde-s-ecb-hasn-t-read-the-stagflation-memo ECB höjde styrräntorna med 25 punkter till 4,00 procent https://englundmacro.blogspot.com/2023/09/ecb-hojde-styrrantorna-med-25-punkter.html

 ”Baserat på nuvarande bedömning har räntan nått en nivå som, om den hålls tillräckligt länge, kommer att bidra till att få inflationen tillbaka till mål i rätt tid”,  heter det i ett pressmeddelande från ECB-rådet. DI 14 september 2023 https://www.di.se/live/ecb-hojer-rantan-som-vantat/ https://www.ecb.europa.eu/press/pr/date/2023/html/ecb.mp230914~aab39f8c21.en.html ECB Hike Crosses Rubicon The decision to bring the deposit rate to 4% came with the vague hope of bringing consumer-price growth below 2% at the very end of the ECB’s outlook in 2025. ... financial markets are already betting on a reversal as soon as next June. The problem for policymakers is that inflation — in their own words — is still anticipated to stay “too high for too long.” On both the headline gauge and an underlying measure that strips out energy and food, price growth is stuck above 5%. Bloomberg 14 September 2023 https://www.bloomberg.com/news/articles/2023-09-14/ecb-hike-crosses-rubicon-of-pain-as-l...

  Här är de uppriktiga och kallar sig eurostat. Torsdagens räntebesked riskerar att bli ett ödesdigert vägval Balansakten mellan inflationsbekämpning och risken att knäcka ekonomin  närmar sig ett avgörande skede. https://www.di.se/analys/ranterysare-okad-risk-for-ett-historiskt-misstag/ https://www.cbrates.com/eurozone/ Räntan har gått upp, men är fortfarande lägre än inflationen.

 The news flow has been dismal enough for investors to resume focus on worries that haunted finance chiefs in 2022, asking if the threat of stagflation is once again stalking the continent. “The euro area is stuck in stagflation, and we’re not going to come out of it any time soon,” said Karsten Junius, chief economist at Bank J Safra Sarasin in Zurich.  Euro zone policymakers will be first to cast a judgment on the where the threats lie, with a decision on Sept. 14 The July decision of the ECB, according to minutes of that meeting. “The concern was also raised that the economy might be entering a phase of stagflation, in contrast to a more benign scenario,” according to the account. Gilles Moec, chief economist at AXA Investment Managers, told Bloomberg Television   “But right now there is no impact whatsoever on inflation, and this is the big issue we have. We have more slowdown than in the US — with more inflation.” Bloomberg 31 August 2023 https://www.bloomberg.c...

till 6,1 procent i augusti jämfört med 6,2 procent i juli.   DI 30 augusti 2023  Inflationstakten i Tyskland sjönk till 6,1 procent i augusti (di.se)

  “In the current environment, this means — for the ECB — setting interest rates at sufficiently restrictive levels for as long as necessary to achieve a timely return of inflation to our 2% medium-term target,”  Lagarde said Friday in a speech in Jackson Hole, Wyoming. Bloomberg 25 August 2023 https://www.bloomberg.com/news/articles/2023-08-25/lagarde-says-ecb-to-set-rates-as-high-as-needed-for-inflation Inlägg med etikett ECB https://englundmacro.blogspot.com/search/label/ECB Speech by Christine Lagarde Policymaking in an age of shifts and breaks (europa.eu)

This means that, if recent inflation had been caused by the two supply shocks of 2022, it would have initially risen above the canonical 2% target, then fallen below it as the shocks faded.  This is not the case in the United States or in the eurozone: stripping out the impact of falling energy prices, inflation continues to run at about 4-5%. Daniel Gros Project Syndicate 7 August 2023 https://www.project-syndicate.org/commentary/central-bank-asset-purchases-contribution-to-inflation-us-eurozone-by-daniel-gros-2023-08

  Policymakers lifted interest rates for a ninth time to 3.75% then, and said inflation is still expected to stay too high for too long.  President Christine Lagarde promised a deeper analysis of underlying trends in September that will inform a decision on whether to hike once more or to pause. Bloomberg 4 August 2023 https://www.bloomberg.com/news/articles/2023-08-04/ecb-says-underlying-inflation-in-euro-zone-has-probably-peaked   ECB Rate Hikes, Return to Spending Restraint Raise Euro Zone Recession Risk - Bloomberg

Trots att inflationen sjunker befaras den vara för hög under för lång tid. SvD/TT 27 Juli 2023 https://www.svd.se/a/VP2E3l/ecb-hojer-styrrantorna-med-25-punkter FT: ECB raises interest rates back to highest-ever level ECB said it would ensure interest rates “will be set at sufficiently restrictive levels for as long as necessary” to bring inflation down to rate-setters’ 2 per cent target.  At present, price pressures are almost three times above that level, at 5.5 per cent. We also decided to set the remuneration of minimum reserves at zero per cent.   It will improve the efficiency of monetary policy by reducing the overall amount of interest that needs to be paid on reserves in order to implement the appropriate stance. We are determined to ensure that inflation returns to our two per cent medium-term target in a timely manner.  We stand ready to adjust all of our instruments within our mandate to ensure that inflation returns to our medium-term target and to preserve t...

News that America’s headline rate of annual inflation fell to 3% in June has fed hopes that the Fed’s next rate rise, which is expected on July 26th, will be its last and that other central banks might relax, too.  Inflation, though lower, remains far above central banks’ 2% targets.  The fall in America’s headline rate has been driven by a one-off decline in energy prices: exclude food and energy, and prices are 4.8% higher than a year ago.  In the euro zone the figure is 5.5%, and in both economies wages are still growing far in excess of productivity growth. In other words, the rich world has some way to go before it is fully disinflated—and many economists expect the last mile to be the hardest.  Though stubborn inflation of, say, 3-4% does not grab headlines as much as recent alarming price rises, it would still be a problem for central bankers.  The Economist 22 July 2023 The world economy is still in danger (economist.com) Could America’s economy escape r...

  The European Central Bank’s plan to maintain interest rates at their eventual peak for an extended period isn’t convincing economists, who see it starting to unravel after just six months. A slim majority in a Bloomberg survey expects a final hike in the deposit rate in September, to 4%, before officials embark on rate cuts in March.  Bloomberg 21 July 2023 ECB’s High-for-Longer Rate Plan Fails to Convince Economists - Bloomberg --- Flaggan och hymnen är faktiskt inte officiella EU-symboler När fransmän och holländare hade röstat nej till det som skulle bli en Konstitution enligt amerikansk förebild slopades flaggan och hymnen i det som i panik gjordes om till ett fördrag i Nice. Läs mer här http://www.nejtillemu.com/flageurach.htm#rachmanflag

 iECB s nearly finished raising interest rates, but will then keep them at a “high plateau” to ensure they fully impact the economy, Governing Council member Francois Villeroy de Galhau said. The ECB’s record cycle of tightening will bring inflation toward its target of 2% by 2025, the Bank of France governor said. Price growth in France has already passed its peak, slowing to 5.3%  Bloomberg 9 July 2023 https://www.bloomberg.com/news/articles/2023-07-09/ecb-will-soon-reach-rate-peak-at-high-plateau-villeroy-says   Anders Borg och Irving Fisher om att priserna har planat ut och nått en platå. Anders Borg, SvD 21 januari 2014: - Jag tror att vi ska räkna med stillastående priser på bostäder under tio år framöver. Professor Irving Fisher, October 1929: "stock prices have reached what looks like a permanently high plateau." Englund: Anders Borg och Irving Fisher om att priserna har planat ut och nått en platå. (englundmacro.blogspot.com) Last Mile of the Inflation Fight Will...

 The most aggressive rate cycle since the Volcker depression of the early 1980s has yet to feed through fully to the real economy and to debt refinancing. Jay Powell is a dove at heart and must be aware of the dangers. At Sintra, he warned of lag effects from past tightening and suggested that the labour market is no longer overheating. The implication is that the Fed should stop raising rates immediately.  Instead he talked up two more rises, bounced into this contradiction by the inflation scorched-earthers (Bullard, Kashkari, Waller, Mester, Barkin). The eurozone is in a credit crunch and a deepening recession, not that this will stop the European Central Bank pressing ahead with more punishment beatings. It is well on the way to another of its procyclical blunders.  Italy’s Giorgia Meloni is right to lash out at the ECB’s “simplistic formula”, and right that “the cure will prove more damaging than the disease”. Ambrose Evans-Pritchard Telegraph 7 July 2023  https...

  Neither Federal Reserve chair Jay Powell nor European Central Bank president Christine Lagarde expect inflation to return to their common 2 per cent target before the start of 2025.   Monetary policy always comes with a lag, taking about 18 months for the impact of a single rate increase to fully seep through into spending patterns and prices. Monetary policymakers began raising rates less than a year and a half ago in the US and UK, and less than a year ago in the eurozone. They went higher than the neutral rate — where they are actively restricting the economy — only a few months ago. But some central bankers and economists believe lags may be even longer — and the effect of the tightening less potent — this time around. Shifts in the housing market may be key in explaining why interest rate rises are taking longer to bite. Labour markets are historically tight in most countries The Bank for International Settlements warned last year that, if interest rates are raised...

  Den positiva utvecklingen beror främst på en nedgång i energipriserna  Däremot stiger fortfarande priserna för mat, alkohol och tobak med nästan 12 procent. Kärninflationen steg från 5,3 procent i maj till 5,4 procent i juni. Det är kärninflationen som Europeiska centralbanken främst tittar på inför sina räntebeslut. DI 30 juni 2023 https://www.di.se/live/nytt-stort-inflationsfall-i-eu/ Euro-Area Core Inflation Quickens Again in Setback for ECB Underlying gauge rises to 5.4%, overshadowing headline slowing Euro-Area Core Inflation Accelerates Again in Setback for ECB - Bloomberg

 The Governing Council has provided orientation on both dimensions. It has stated clearly that “future decisions will ensure that the key ECB interest rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to our 2% medium-term target and will be kept at those levels for as long as necessary”.  we will have to bring rates to “sufficiently restrictive” levels and keep them there “for as long as necessary”.  inflation has already dropped by 42 percentage points from its peak last summer. the second phase of the inflation process is now starting to become stronger. All this means that we will face several years of rising nominal wages Barring a material change to the outlook, we will continue to increase rates in July. Uncertainty about transmission arises from the fact that the euro area has not been through a sustained phase of rate hikes since the mid-2000s and has never seen rates rise so quickly. And this raises the question of ...

 ECB repeated its warning that it expects inflation “to remain too high for too long” as it will not return to its 2 per cent target for another two years. The ECB started raising rates several months after the Fed and, at 6.1 per cent, inflation is now higher in the eurozone than in the US. The ECB raised its forecast for core inflation to 5.1 per cent this year, 3 per cent next year and 2.3 per cent in 2025 FT 15 June 2023 https://www.ft.com/content/25c99f1d-c730-4ab8-a7ff-7aca6bcd35b9 ECB meddelade också att återinvesteringarna av förfallande räntepapper inom ramen för det gamla köpprogrammet APP upphör vid halvårsskiftet. Det innebär att balansräkningen kommer att krympa snabbare. Viktor Munkhammar DI 15 juni 2023 https://www.di.se/analys/hokaktig-lagarde-okar-risk-for-fler-svenska-hojningar/ ECB om APP och PEPP https://englundmacro.blogspot.com/2022/09/raise-three-key-ecb-interest-rates-by.html ECB is having a harder time reversing years of massive asset purchases. Otmar Issin...

 A decade of quantitative easing (QE) has significantly expanded the ECB’s balance sheet and created a liquidity glut, leaving policymakers in a trap from which they are struggling to escape. Given the scale of the ECB’s bond holdings, however, its approach to quantitative tightening (QT) seems downright homeopathic.  At the current rate, bringing the asset-purchase program to zero will take roughly 15 years (and this does not even account for the fact that the ECB continues to reinvest all maturing assets purchased under the Pandemic Emergency Purchase Program). The ECB’s hesitation to pursue a forceful QT policy thus fosters expectations that fiscal policies will continue to be expansionary, which will ultimately extend the period of too-high inflation.  Otmar Issing Project Syndicate 7 June 2023 https://www.project-syndicate.org/commentary/ecb-qe-liquidity-trap-by-otmar-issing-2023-06 ECB’s €500 Billion TLTRO repayments and Italian Banks https://englundmacro.blogspot.c...

  Europeiska centralbanken är på väg att testa motståndskraften hos kontinentens banksektor genom att få långivare att betala tillbaka cirka en halv biljon euro i billiga lån från pandemitiden – i ett svep. Italiens utestående upplåning under ECB:s TLTRO-program är mer än det överskott av kontanter som dess långivare har parkerat hos ECB, vilket innebär att några av dess banker kommer att behöva samla in pengar någon annanstans för att betala tillbaka lånen. Grekiska långivares överskottsreserver är mer eller mindre lika med vad de är skyldiga ECB. Andrea Enria, ECB:s banktillsynsmyndighet, sa förra månaden att vissa företag har ett "materiellt beroende" av TLTRO:er Italienska banker kan behöva samla in cirka 35 miljarder euro 2023, och ytterligare 75 miljarder euro för att förbereda sig för fler återbetalningar av TLTRO-lån nästa år, enligt uppskattningar från NatWest Markets. Bloomberg 14 juni 2023   Riktad långfristig refinansieringsverksamhet - TLTRO TLTRO är ett superbil...

 Inom loppet av tio år har en euro blivit över 30 procent dyrare mot den svenska kronan. Dollarn har blivit nästan 70 procent dyrare. – En stor del av handeln med svenska kronor är rent finansiell. Det gör valutans värde helt beroende av hur finansmarknaderna använder den. – Under en period fanns en rädsla för att kronan skulle stärkas. Problemet var att när kronan blev väldigt svag fortsatte Riksbanken att upprepa sitt budskap, att den ville ha en svag krona. Stefan Gerlach är chefsekonom på den schweiziska banken EFG och har tidigare varit bland annat vicechef för Irlands centralbank. Enligt honom finns en stark negativ bild utomlands av hur svensk ekonomi ska klara högre räntor. – Jag har känslan av att skuldsättningen har stor betydelse för kronan. Det kanske inte är en fastighetskrasch marknaderna ser framför sig, utan främst att Riksbanken inte klarar att höja räntan lika mycket som Europeiska centralbanken. Carl Johan von Seth DN 9 juni 2023 https://www.dn.se/ekonomi/sa-blev...