The Day at a Glance | February 8 2022

The Top

*Any monetary policy adjustment will be gradual: Christine Lagarde, President of the ECB.

*Macron had meetings with Putin, who assured that there will be no escalation of tensions in Ukraine.

*Japan and the United States reached an agreement to eliminate tariffs on steel implemented during Trump`s administration.

Economic environment

Lagarde assured that monetary policy adjustments will be gradual. In her testimony before the European Parliament, President of the European Central Bank Christine Lagarde assured that any change in the bank`s monetary stance will be made gradually and will depend on data. Lagarde assured that the ECB must maintain a flexible stance and keep all options available as the economy recovers from the pandemic and inflationary pressures build up. The ECB`s strategy will consist on keeping up with economic data month over month and assess how it modifies the medium and long term inflationary outlook – in order to decide whether or not said data is conducive towards a less accommodative monetary policy. These comments were made a week after Lagarde started to change her communications with respect to monetary normalization once inflation continued to accelerate in January (5.1%). Now, the ECB is expected to give some guidance regarding its future monetary policy meeting, scheduled to take place in March, especially because Lagarde doesn’t consider that an increase in interest rates this year is unlikely to occur. The ECB`s exit strategy and its plans to withdraw stimulus is still being debated among its members; some of them, like Klaas Knot, consider that increase rates in the 4Q22 would be wise. Francois Villeroy, in contrast, considers that decisions should be made every meeting, while the most extreme stance is held by Robert Holzmann, who considers that more of an aggressive process of monetary normalization could occur, with interest rate increases occurring even before the purchasing programs come to an end. Lagarde assured that there will be no interest rate increases until after the programs finalize. Lastly, the Lagarde acknowledged that the increase in prices could be greater than expected in the short term, and that this could turn into a concerning scenario if said increase feeds a rise in wages or if the economy quickly returns operating at its full capacity.