Technical Analysis

ECB: Out-hawking the Fed but they should be less aggressive

Bank of America Global Research discusses its expectations for the ECB policy trajectory versus the Fed.

While most central banks seem to be winding down their tightening cycles, the ECB still seems to be on automatic pilot. Ruben Segura and team expect 50 bp hikes in both February and March and two more 25 bp hikes by June.
That brings the depo rate to 3.5%, with a risk of more. At first blush
that does not seem very hawkish, but keep in mind two things. First, the
neutral policy rate in the Euro Area is likely quite low-the ECB pegs it at 1 to 2%, but Ruben thinks it is at the low end of that range,” BofA notes.

“Moreover,unlike the UK and US the Euro Area does not have an overheating labor market. The inflation problem is almost entirely due to supply shocks. This suggests that they should be less aggressive, not more aggressive, than the Fed,” BofA adds.

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