DInvestors are currently taking cover on the stock markets. That is the impression when you look at the price development of the past few days. On Thursday, the Dax fell by 0.7 percent to 15,683 points. The leading German index is now almost at a respectful distance from the 16,000 point mark. The uncertainty on the markets with regard to the future development of inflation and interest rates weighs too heavily. There are also concerns about the economy, especially because the Chinese economy has started to falter.
Against this background, it is not surprising that the Governing Council of the European Central Bank (ECB) reported on Thursday from the self-imposed summer break. Latvian Councilor Martin Kazaks commented on further interest rate policy: “If we look at the coming months, interest rates will increase very little, if at all.”
Rate hike questionable
On September 14, ie in about four weeks, the ECB wants to decide on further interest rate hikes. ECB President Christine Lagarde has so far only ruled out a rate cut – both a rate hike and a rate pause are possible.
The cautious statement by a central banker who is considered a “hawk”, ie a supporter of a tighter monetary policy, was interpreted by economists as a sign that it could be close to getting the majority in the ECB Council for a rate hike in September. “I find Kazaks’ statement remarkable, precisely because I assign him to the hawk camp,” said Marco Wagner, ECB observer at Commerzbank.
The investment bank Goldman Sachs has evaluated what the balance of power between supporters and opponents of further interest rate hikes could look like. French central bank governor François Villeroy de Galhau and ECB executive board member Fabio Panetta are likely to take a break, focusing on the duration of higher interest rates rather than the key rate level.
Bundesbank President Joachim Nagel and Lithuanian Gediminas Simkus were more in favor of a further hike, while Lagarde and Slovakia’s central bank governor Peter Kažimír reiterated a “fully data-dependent” approach. “We stand by our forecast that interest rates will rise 25 basis points to 4 percent in September,” said Jari Stehn, Goldman Sachs’ chief European economist.
“Falconic Pause”
Other economists believe that the Federal Reserve could also do what has been dubbed a “hawkish pause” in America – a pause on interest rates combined with the announcement that interest rates will be raised again later. “I think it makes sense for the ECB and the Fed to buy some time in September with the combination of a rate pause and hawkish communications,” said Karsten Junius, chief economist at Bank J. Safra Sarasin.
The minutes of the previous Fed interest rate meeting attracted attention on the financial markets on Wednesday because observers read from them that the US central bank is keeping the door open for further interest rate hikes. “Most participants continued to see significant upside risks to inflation, which may require further monetary policy tightening,” read the July 25-26 Federal Reserve minutes.
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