ECB Insight: Nagel, Though Hawkish as Usual, Sticks to the Beaten Path

18 November 2022

By David Barwick – FRANKFURT (Econostream) – The speech made Friday afternoon by European Central Bank Governing Council member Joachim Nagel ultimately offered little to guide ECB watchers.

Speaking at the European Banking Congress, Nagel, who heads the German Bundesbank, was hawkish. But then, that is a given. When all is said and done, he broke no real news, with much of today’s speech a fairly straightforward reiteration of remarks he made at the Karlsruhe Economic Club eight days ago and at a Bundesbank symposium two days before that.

That was true in particular of his critique of the inherent contradiction in running an asset purchase programme that depresses the long end of the yield curve and at the same time raising official short-term borrowing costs.

It was also true of his call for monetary policy to continue to act decisively via ‘further steps’ and to tighten in the face of a recession that, according to available evidence, wouldn’t make a terribly meaningful contribution to the effort to control inflation.

Potentially of interest was his exhortation not to be led astray by what he called ‘the first vague signs of an easing of price pressures’. To be sure, on November 8 he already vowed to ‘do all I can to ensure that we … do not – under any circumstances – let up too soon’, but then he had more in mind the gathering economic storm clouds.

Still, even then, as today, he also insisted that ‘monetary policy must not let up too soon’, so that identifying any real evolution in his views is difficult to impossible.

As a final point, however, we note that he referred today to ‘three major policy rate increases in a row’ just before asserting that ‘[f]urther decisive steps are necessary.’ If we read that right, he might be indicating, deliberately or not, that 50bp would satisfy his definition of ‘decisive’.