ECB Hawk-Dove Ranking: Lagarde Ranked a Bit Less Dovish, Müller a Bit More Hawkish

4 February 2022

By David Barwick – FRANKFURT (Econostream) – Econostream’s latest ranking of the members of the European Central Bank Governing Council in terms of hawkishness/dovishness has been updated to take into account the passage of the February 3 monetary policy meeting, so that the columns indicating voting status include only future meetings – as of today, that means March 10, April 14 and June 9.

But that is the more mundane adjustment, and we have also re-ranked two Governing Council members, making both marginally more hawkish on our scale extending from -2 (most dovish) to 2 (most hawkish). The first is none other than ECB President Christine Lagarde.

Whether she has been browbeaten into taking inflation risks more seriously by colleagues who were galled by her tone-deaf minimisation of these risks after December’s policy meeting, whether she has had an epiphany or whether she has simply decided she’d better play it safe for the sake of her legacy, we don’t claim to know.

What we do know is that, as discussed earlier this week in somewhat greater detail, she has ‘sharpened her language over the last seven weeks.’ As such, while the Lagarde to emerge from yesterday’s deliberations had surprisingly little in common with the Lagarde who insisted on December 16 that a rate hike in 2022 was ‘highly unlikely’, it was less a sudden break with the past than the consummation of an evolution.

For now, we have in any case only adjusted her up by 0.25 point to -0.5, meaning that we still consider her to be generally tilted dovishly and would need to see more to be convinced of a fundamental shift in attitude.

As for Estonian central bank Governor Madis Müller, previously situated at a rather hawkish 1.0, a review of his comments going back two months - culminating in his suggestion today that it was clearly time to reduce ECB policy support for the economy – leads us to think that a notch-more-hawkish score would better suit him.

With these two modifications to our ranking, we note with interest that the mathematical average for the entire Governing Council has risen to -0.07, which is still in dovish territory but just barely. That the average for the entire Council is not hawkish – i.e. positive - has much to do with a relatively dovish Executive Board.

Indeed, omitting only Chief Economist Philip Lane (-1.75 and thus ultra-dovish) from consideration would boost the average for the entire Council to exactly zero, while removing only Executive Board member Fabio Panetta (-2) would leave the Council as a whole very slightly hawkish on balance.

While it is not to be expected that the Council will suddenly find itself bereft of either Lane or Panetta, it can be imagined that Lagarde and Müller are not the last to be re-ranked more hawkishly and that the mathematical average will in the coming weeks climb further.

In actuality, a mathematical average does not tell the whole story anyway. Lane’s -1.75 understates the influence he wields as the member who presents the ECB’s economic assessment and makes a policy proposal at Governing Council meetings.

However, with Lagarde evidently singing a different tune now, it is possible that Lane will deem it an opportune moment to discover his inner hawk as well.