The ECB Is Right To Hike

Crédit Agricole argues that the ECB is correct to pursue multiple rate hikes to ensure inflation converges to its 2% target. The bank views the resulting economic slowdown as a necessary instrument of monetary policy rather than a policy mistake.

Key Takeaways

• 1.The ECB is expected to hike rates several times, with a central scenario of three hikes.
• 2.Economic slowdown resulting from rate hikes is a necessary tool to control inflation, not a policy mistake.
• 3.The ECB's focus on core inflation within its transmission range is the correct framework to meet its primary mandate of price stability.

Table of Contents

• The ECB is right to hike
• 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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