The ECB Is Right To Hike

The author argues that the ECB is correct to pursue multiple interest rate hikes to address inflation, rejecting the notion that this constitutes a policy mistake. The analysis emphasizes the ECB's primary mandate for price stability over economic growth concerns.

Key Takeaways

• 1.The ECB is expected to hike rates several times, and this is a correct policy decision rather than a mistake.
• 2.Monetary tightening is a necessary tool to manage core inflation toward the 2% target, even if it results in slower economic growth.
• 3.The ECB must comply with its primary mandate of price stability under the Treaty on the Functioning of the European Union (TFEU).

Table of Contents

• The 2011 "mistake": hiking in a recession
• Weakening growth to fight temporary inflation
• Of course monetary tightening weakens growth
• Acting on inflation nevertheless
• Looking through? How long?
• If inflation is too high within the transmission range, then the ECB must act
• One needle in our compass
• Within its mandate: respecting the TFEU
• Single mandate vs dual mandate
• Conclusion

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