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The ECB's decision was well received by the financial community, as witnessed by the sharp rise in equity markets in the wake of Christine Lagarde's speech. She made it clear that the ECB was now waiting to see the effects of its policy before making any further decisions. In other words, rates are likely to remain high long enough to have a negative impact on inflation.
In fact, the ECB is expecting difficult times ahead in order to stabilize prices. And so much the worse if this plunges the European economy into recession. In the meantime, growth projections are not looking good, as the following graph shows:
Did you say dot-plot?
As for US inflation, the latest data came out broadly in line with expectations and did not significantly impact the narrative. Core CPI came in at 4.3% annualized vs. 4.7% in July, while annual PPI was published in line at 2.2%. Weekly jobless claims were also in line with expectations, supporting the "soft landing" theory of the US economy.
If all is for the best in the best of worlds, the week nevertheless promises to be a busy one, with successive meetings of the Fed and the Bank of England. In other words, investors will still have their work cut out for them as they unravel the language inherent in the exercise. While the status quo is likely to dominate, the new dot-plot will reveal a little more about the positions of each member of the Federal Reserve and give some indication of a possible rate cut as early as 2024. Or not.
