ECB Prepares for First Rate Hike in 11 Years

    Photo: Bloomberg [via The Wall Street Journal]

    The Facts

    • On Thu., the European Central Bank (ECB) announced plans to raise interest rates by 0.25 percentage points in July, marking the first time it has hiked rates since 2011.

    • This comes as eurozone inflation hit an all-time high of 8.1% in May, with the ECB projecting that inflation will reach 6.8% for 2022 - up from March's forecasted rate of 5.1%.

    The Spin

    Establishment-critical narrative

    The ECB has recklessly been sitting on its hands while Europe plunged into a tide of rising prices and ineffectual aid packages. Although the ECB seems to have finally recognized the need for monetary tightening, it's wasting a crucial moment in the fight against inflation by delaying the hike until July.

    Pro-establishment narrative

    The ECB is right to proceed cautiously. It's in the tricky position of having to balance tightening efforts to tame inflation while maintaining stability in the sovereign-bond market. To be overly aggressive could trigger a new sovereign-debt crisis and recession, but to do nothing could be just as damaging.

    Cynical narrative

    The eurozone is facing paltry growth and soaring inflation - the very definition of "stagflation" - and that's the good news. The bad news is that the eurozone has been suffering through it despite eight years of negative interest rates and loose monetary policy. What happens now that the era of "easy money" has come to an end is anyone's guess.

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