Au revoir, Mme Lagarde
TLT•Christine Lagarde is stepping down as European Central Bank president in February, eight months before her term was scheduled to end. Markets are pricing in three quarter-point ECB rate increases by the end of next year.
1. Leadership transition
Lagarde is leaving after more than seven years as ECB president. Her early resignation was expected, and the contest to succeed her is expected to intensify, with former Dutch central bank head Klaas Knot and former Spanish central bank chief Pablo Hernandez de Cos seen as frontrunners.
2. Policy outlook
The resignation comes as inflationary pressures build due to the Iran war and political uncertainty rises in the euro zone. Economist Holger Schmieding said financial stability may be an important consideration in choosing new ECB leaders and that Knot may have an edge because he formerly chaired the G20’s Financial Stability Board. Schmieding said he does not believe Lagarde’s early departure changes the ECB policy outlook; the bank is seen holding its deposit rate steady today, while markets price in three more quarter-point increases by the end of next year.
