ECB’s Nagel: ‘Much Too Early to Think About a Pause’, Must Wait for Incoming Data

25 August 2023

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Joachim Nagel on Friday said that it was too soon to consider a pause in monetary policy tightening and that the Council's September decision would also have to depend on information yet to come.

In an interview with Bloomberg, Nagel, who heads the German Bundesbank, said, ‘I think it's, for me, much too early to think about a pause. I think we have to wait for the next numbers.’

‘So, we agreed in our July meeting in the Governing Council that we will wait for the numbers we will see in our September meeting, and I will more or less follow this path’, he continued. ‘I will wait for the September numbers and then we will see.’

The weak recent PMI data shouldn’t be overestimated, he said. The August inflation data and the ECB’s updated macroeconomic forecasts would also be relevant, he said.

Nagel at various points of the interview returned to the idea of needing to wait for incoming data and then decide in September, though he also reiterated the need for policy to be ‘even more stubborn than inflation’ and said that ‘we shouldn't forget inflation is still around 5%, so this is much too high.’

Still, he noted the worsening economic outlook and slowdown of headline inflation.

‘So, we have a good labour market situation, but the economic activity is slowing, this is for sure, but this is not a surprise to me’, he said. ‘I think when you are hiking interest rates nine times, it's, it's for sure that there is an impact on here. And we, we are seeing this, and this is good and bad news. Inflation is coming down. Core is still sticky. And so, the next months we will get more information about this.’

The bulk of monetary policy’s impact would materialise next year, he said.

The German economy would not experience a hard landing, he insisted.

‘I'm still pretty optimistic that we will have a soft landing’, he said. ‘Yes, the third quarter seems to be pretty weak. But as I said, for, for next year, I'm more, more optimistic.’