Investors perplexed as ECB stir doubts about outlook

The European Central Bank’s top economists are wrangling over the outlook for inflation and interest rates, leaving investors perplexed over the central bank’s next policy moves.

Philip Lane and Isabel Schnabel, who lead the economic debate on the ECB’s board, gave contrasting views this week on whether the Eurozone central bank should scale down its interest rate increases and even on how to measure inflation.

Lane said “many arguments for another 75-basis-point rate hike were “no longer there”. The sequential economic shocks of the COVID pandemic and energy price spike meant current inflation readings should be taken with a pinch of salt because projections show a rapid decline, he added.

Schnabel meanwhile pushed back on the notion of smaller rate hikes and took a jab at economic projections, emphasizing that the longer inflation was allowed to remain high, the greater the risk that it would take root.