ECB sets the scene for jumbo rate hike

The European Central Bank is prepared to at least repeat the half-point increase in interest rates it delivered last month, with an even bigger move not to be excluded as inflation nears yet another record.

That is one message from ECB officials who joined Fed’s annual Jackson Hole symposium, which wrapped up Saturday. Fed Chair Jerome Powell set the tone, saying “US borrowing costs are headed higher and will stay there “for some time.”

Preparation for the next rate hike included an article by Isabel Schnabel, member of the ECB’s Executive Board, published on the ECB’s official website saying that “As central banks took up the fight against spiraling inflation in the late 1970s and early 1980s, they brought down and stabilized inflation expectations at levels that provided a solid nominal anchor for firms and households”.

“Output growth volatility in the euro area over the past two years was about five times as high as it was at the peak of the Great Recession in 2009. Inflation volatility has surged beyond the levels seen during the 1970s”, the article added.