ECB's Lane says growth drags may limit need for ECB action
TLT•ECB Chief Economist Philip Lane said energy costs, higher borrowing costs and shrinking budget support could weigh on growth and limit how much the bank needs to tighten policy. Markets price in two to three more ECB rate hikes in the coming year, though expectations are volatile.
1. Growth pressures and policy
Lane said high energy costs, lower budget support and rising market-based borrowing costs could curb demand and weigh on economic growth. He said the ECB’s measured response to high inflation remained appropriate and that decisions would be made meeting by meeting.
2. Inflation and rate expectations
Lane said long-term interest rate increases could slow growth and reduce inflation pass-through more than projected. Markets price in two to three more ECB rate hikes in the coming year, but those expectations have been volatile. Bundesbank President Joachim Nagel said there were no clear signs that inflation had fed through to prices and wages, while warning that risks to inflation remained to the upside.
