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Powell: time to retire transitory

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Christine Lagarde (R), President European Central Bank (ECB) and Vicepresident Luis de Guindoss(L).

Thomas Lohnes | Getty Images News | Getty Images

Federal ReserveMarket participants were shocked earlier this week at the change in tone of Chairman Jerome Powell regarding inflation. Economists across Europe now say that the European Central Bank Not only that, but also the responsibility.

PowellU.S. lawmakers were informed that it’s “probably a great time to.” retire that word (transitory)When talking about inflation, we should try to clarify what we mean.

The financial markets have become increasingly worried about the rise in consumer prices. The inflation rate has risen to levels that exceed the central bank’s targets. Money managers have become skeptical of whether an easy monetary policy will work. In the Euro area, this is not an exception.

It is not something we should worry about, as Transitory indicates. However, we aren’t sure if it is worth worrying about,” George Buckley of Nomura (UK and Euro Area economist), told CNBC on Wednesday.

He said that the economic impact of higher inflation within the Euro Zone is not certain.

Tuesday data revealed that inflation reached a historic highThe 19 member bloc recorded 4.9% inflation in November. The ECB has a policy of aiming for inflation at 2% in the medium-term.

So far, the central bank has said it expects inflation to come down throughout 2022 — which suggests that a relatively loose monetary policy is still needed. There are questions growing about the longevity of this period with high inflation, which is longer than was anticipated by the ECB.

In September, the ECB predicted that inflation would rise to 2.2% by the end of 2019, 1.7% in 2022, and 1.5% 2023. These forecasts will soon be revised.

Inflation expectations could be impacted by higher energy prices and ongoing supply chain problems.

Buckley from Nomura stated that the higher the inflation, the greater the market’s perception that central banks must act. This is because inflation rises and puts more pressure on the central banks for tighter monetary policy.

Calls for clearer messaging

Carsten Brzeski from ING Research’s global macro head, stated that “The ECB shouldn’t retire ‘transitory” but must communicate in a more nuanced manner about short-term ones-off factors as well as potential long-term factors driving inflation up,” via email.

He added that the ECB should acknowledge it has been too naïve when it comes to the pass-through from producer prices to consumer prices and therefore should be careful about sounding convinced about other traditional relationships.

The issue of clearer messaging was raised previously.

Nick Andrews from Gavekal Research, Europe analyst, stated that Christine Lagarde had “failed catastrophically” to discredit market hopes for a 2022 interest rate increase.

At Wednesday’s close the short term rate market priced in a 23-basis point increase by December 2022. It was pricing in an additional 32 basis point increase by the time of Lagarde’s Thursday press conference,” he stated in an email.

ECB Watchers anticipate that the central banking will stress inflation’s decline next year.

Frederik ducrozet, Pictet Wealth Management strategist, stated that he expects the ECB signal to indicate that inflation will ‘decline’ in 2022 and also stress upside risks to this outlook.

He said that the institution may note that inflation won’t fall as rapidly and as significantly as expected.

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