The last 24 hours has been an interesting watershed moment in monetary policy as the U.S. Federal Reserve raised the FFR 25bps and purportedly is now embarking on a cycle of tightening.
In addition, the Bank of England, although holding rates steady at 0.25%, also heralded a significantly more hawkish than expected view. However, it was a surprising statement from the European Central Bank that caught the market by surprise as the ECB’s Nowotny suggested that rate hikes could be on the way for the Eurozone.
Subsequently, it would appear that after years of an extraordinary stimulus package that the Eurozone may be resuming a period of building inflation pressures. Certainly the latest round of CPI data seems to concur with the overall view that strong inflation is on the way with January and February posting 1.8%, and 2.0% gains respectively. However, GDP growth is still languishing behind the curve, with last quarter’s anaemic 0.4% print, and will have to increase significantly to see the sort of gains that could support genuine inflationary pressures.