ECB's Wunsch on Market Pricing: 'It May Be Too Early to Get Our Hopes up'

21 February 2024

By David Barwick - FRANKFURT (Econostream) - European Central Bank Governing Council member Pierre Wunsch on Wednesday suggested that markets might be over-optimistic about ECB monetary policy easing.

Wunsch, who heads the National Bank of Belgium, wrote for Eurofi magazine that 'the absence of financial stress could also indicate a degree of fundamental uncertainty for central banks regarding the stance and transmission of monetary policy at the current juncture.'

This could reflect the limited degree of monetary tightening that has actually occurred, given the very low level of real rates, he said. Still, he noted, markets expect price stability to be restored quickly.

'That being said, it may be too early to get our hopes up', he continued. 'Wage pressures continue to be high, labour markets remain tight and bond markets can change course quickly, as the late summer sell-off illustrated.'

'Therefore, I believe one should not discard a scenario in which monetary policy stays tight for longer than currently expected, one that would also be associated with more pronounced risks to financial stability', he added.