More Than Just Hot Air, The ECB Raised Interest Rates Again

More Than Just Hot Air, The ECB Raised Interest Rates Again
Paul Allison, CFA

9 months ago2 mins

What’s going on here?

The European Central Bank (ECB) nudged interest rates up again on Thursday in a bid to stick a sharp pin in the region’s rising prices.

What does this mean?

The Federal Reserve (the Fed) might’ve stepped away from the big red interest-rate-hike button, but the ECB just gave its own version a little push, raising its main rate by a quarter of a percent to 3.5%. That leaves Europe’s rate a fair distance from where the Fed decided to come up for air, even though recent data showed prices in the region are still rising faster than in the US. Still, while the Fed has to look after employment and inflation, the ECB just has one official goal: keep prices in check. So even though it recently pulled its economic outlook downward, it’s unlikely to box off that rate-bulking button anytime soon.

ECB rate hike

Why should I care?

For markets: Limber up.

The ECB has a lot of countries to keep track of – and boy, they sure flip-flop. Just three months ago, Germany was tipped to have dodged a recession, but now Europe’s biggest economy is on the slide. And those topsy-turvy trends extend outside of the eurozone too. Inflation in the UK is far from the 2% the Bank of England expected to see by now, but the country’s economy – once “the sick man of Europe” – has suddenly got its strength back. Investors, heed the warning: stay flexible with your own forecasts.

Zooming out: An endless summer.

Europeans praise warmer weather every year, but there’s more than sunny skies to celebrate this time. The war-induced energy shortage meant household bills had bite during the winter, but now Europe’s boasting a half-full gas reserve – well above the 34% five-year average. What’s more, it’s on track to meet its 90% goal before next winter, which should mean today’s lower gas prices – a chunky component of inflation data – might stay tame.

Record EU gas storage
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