Whatever Lagarde is selling, markets aren’t buying
Christine Lagarde was keen to stress today that the view within the central bank remains that inflation is temporary and that it will return to below its target over the medium term. She also insisted that their analysis does not support market-based lift-off expectations while acknowledging that inflation pressures are lasting longer than it previously envisaged, which may explain why markets are not reassured by her words.
It’s hard for the central bank to be overly confident in their inflation assessments when they have proven to be overly optimistic so recently. That came across despite Lagarde’s insistence that guidance for lift-off won’t be satisfied in near future and that they believe pressures will abate over the course of the next year. She also passed on the opportunity to suggest markets are ahead of themselves.
Yields on euro area debt rose over the course of the ECB press conference while the euro spiked. It would appear traders were either unconvinced by Lagarde’s performance or the central bank’s analysis and expect it to change course over the next year. Either way, there’s clearly a gulf between the ECB and the markets.
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