Independent Strategy

The ECB’s (not quite) inflation revolution

President Lagarde seemed hopeful that the ECB’s new inflation framework was a positive step forward. But the policy response seems to require more action than verbiage. Besides some headline volatility, the underlying inflation story in Euroland has not really been changed by the pandemic. And inflation over the forecast horizon is falling, not rising. Monetary policy might be accommodative in the Governing Council’s eyes, but not in the eyes of prices. For the new target to remain credible, pressure on the bank will be to do more. We remain short euro versus the US dollar.

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