The ECB released a terrible presser. While they started to slowly withdraw absurd policies with a hope that APP will be halted in Q3 which could possibly herald the possibility of a rate hike before year-end, they seem to be in total discovery mode. The language is so convoluted that no actionable guidance emerges other than « we are watching carefully ». They seem to be overly relaxed on the systemic risk front when they shouldn’t. And come across as having zero ideas what’s going to happen to inflation. Inflation risks are to the upside, but also to the downside. Textually. That leaves staff projections. But these are not really projections. They are reprojection. Staff adjusted their ‘22 numbers to adjust to what their models totally missed. A doubling almost. But they kept their ‘23 and ‘24 numbers almost unchanged (up by 10 bp a piece). Meaning they have no clue and just waiting on data to come so that they can follow. This is problematic because neither the governing council nor staff seems to be offering any anchoring. What will the reference point be for the curve in terms of pricing a terminal rate? Your guess is as good as any. Said differently, the ECB has no guidance and no leadership. There is no reference to anchor rates. It’s an unmitigated disaster.
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