Forgive us the writer and philosopher Robert M. Pirsig, but in these difficult times it is urgent to change the title of his masterpiece: better Zen and the art of maintaining monetary policy. In fact, transcendental patience is needed to withstand the management (and communication) short circuit that is progressively corroding the gears of the ECB. Having abandoned the so-called “forward orientation” (rational, prospective and even enlightened), today’s navigation by sight resembles Tom Hanks’ swaying on the raft in Cast Away. Without a guaranteed happy ending.
The recent quarter-point rate cut is precisely the mirror of the Eurotower’s lack of “vision”. The hawks of the institute accepted it only to avoid causing damage to the credibility of the Eurotower, after a flood of declarations had cleared the easing for weeks. But the immediate raising of the shields of the hard wing, that reminder of the persistent dangers of inflation despite the benevolent estimates of the “forecasters” in Frankfurt, suggests that, as early as July, a tense confrontation will begin with the doves of the board. Given the internal balances, the outcome seems obvious: zero possibility of further softening until December. With all due respect to the indebted states (a 100 basis point cut would have brought Italy a saving of three billion on interest expenditure), to companies that want to invest at less onerous costs and to families with dependent mortgages.
Precisely those same companies and families that Christine Lagarde addressed yesterday with an intervention on the ECB blog (Why we changed interest rates) halfway between the rehashing of things already said a few days ago and the bignamento of monetary policy. “We are aware of the difficulties that the increase in inflation and subsequent rate increases have entailed for some citizens and businesses”, but we have done what was necessary to avoid the risk that “high inflation represents the new normality” and therefore leads companies to increase prices and unjustified wage increases. A full-blown self-absolution with which he justifies the fact that rates must “remain restrictive as long as necessary to ensure price stability on a lasting basis”.
In reconstructing the genesis of the inflationary flare-up, i.e. the surge in the prices of energy and food goods following the invasion of Ukraine (exogenous shock which cannot be counteracted with the tightening of interest rates), the former IMF, however, fails to mention how , judging the phenomenon to be transitory, the launch of the countermeasures was delayed. Another short circuit that complicated the subsequent path, as well as a background that goes hand in hand with the historical one on spreads (“We’re not here to reduce them”). The topics, moreover, counterpoint Lagardian’s entire career: capable of keeping his mouth shut so as not to reveal details on the new shield against speculation (TPI); to bypass the ’22 Jackson Hole Fed symposium to devote himself to Joyce’s Ulysses; and becoming the protagonist of a tragicomic slip when he explained that “I also have relatives who suffer from high inflation”.
He recently revealed to Sky TG24 that «on my necklace it says In charge to remind me every now and then and regularly that I have a responsibility and that I must deliver results». We defer to the leniency of the court.
