Why the ECB still does not align with the Fed
The outcome of the ECB meeting commented by Michele Morra, Portfolio Manager of Moneyfarm
For yesterday 's ECB meeting, analysts generally expected to see no change in monetary policy, neither with regard to Pepp, nor with regard to an increase in interest rates.
The markets were focused more on the tone of Lagarde's statements than on concrete actions, looking for any signs of change in the size of the purchases from June onwards.
Of course, in the morning we witnessed a minimum of nervousness, with European bond rates rising marginally until 15:00, and then returning to fall below yesterday's levels after Lagarde's intervention, which confirmed the unspoken expectations. implementing any substantial changes, using dovish rhetoric and confirming that European monetary policy will be disconnected from American monetary policy.
Compared to the Fed , the ECB maintains a more uncompromising approach with respect to the 2% inflation constraint, also because the target is much further away, given that expectations in the US for 2021 see a CPI at 2.6%, while in Europe the values they are more contained (1.6%) in line with the depressed growth of the last decade.
For now, this is not enough to cool the markets, which in any case see the price trajectory still largely under control, but could create a source of ambiguity in the medium to long term, especially if a recovery dynamics similar to that seen were to be ignited in the EU. in the United States".
In fact, the improvements on the economic front and the distribution of vaccines could lead European interest rates to rise earlier than expected, entailing some challenges, not only for bonds, directly impacted by the decisions of the ECB, but also for the equity, whose valuations are based on earnings growth also driven by an expansionary monetary policy.
A reassessment of the economic recovery will mainly affect the medium-long part of the curve, the slope of which has already increased substantially compared to three months ago, but we expect the normalization path to remain gradual and relevant to market conditions.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/perche-la-bce-non-si-allinea-ancora-alla-fed/ on Fri, 23 Apr 2021 05:30:51 +0000.