New Front in ECB’s Inflation Battle to Bring Bargaining on Rates

Exactly how that will happen isn’t entirely clear, beyond a preference by a broad majority of officials for allowing maturing debt to roll off, rather than implementing outright sales. President Christine Lagarde has pledged a “measured and predictable” approach.

But it’s the precise design of QT — particularly its timing and speed — where the room for conflict is largest. The experience of the Federal Reserve and the Bank of England offers only limited guidance as the ECB needs a strategy that will work across a bloc of 19 — soon to be 20 — divergent countries.

Despite a push by Bundesbank chief Joachim Nagel to fully halt reinvestments of maturing debt under the APP by March, caution appears to be the watchword.

Even his hawkish colleague Klaas Knot from the Netherlands, for instance, wants an “early but partial stop to reinvestments, to test the waters before calibrating the ultimate pace of the rolloff.”

Much will depend on how the economy withstands the winter energy squeeze. Fresh forecasts this week will offer pointers on how households and firms may cope. But the high uncertainty that persists may assuage even the toughest policymakers.

“Lots of criticism from the hawks was based on quantitative easing,” said Martin Wolburg, an economist at Generali Investments. “Embarking on QT will address some of their concerns. They’ll put more emphasis on this and adopt a more relaxed stance on rates.”

Source: Bloomberg

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