JACKSON HOLE, Wyoming (Reuters) – European Central Bank (ECB) officials are increasingly concerned about the deteriorating economic outlook and, if the debate remains open, the possibility of a pause in raising rates is getting stronger, eight sources familiar with the matter told Reuters.
The ECB has raised rates at each of its previous nine monetary policy meetings. At the last one, which took place on July 27, it left its options open for the next scheduled for September, with central bank officials torn between a pause and further tightening.
Discussions with eight officials in Europe and on the sidelines of the Federal Reserve (Fed) symposium in Jackson Hole, US, suggest that the camp of those in favor of a pause is gaining ground as economic indicators in recent weeks have emerged. below expectations, suggesting the likelihood of an economic recession.
“The number of votes in favor of a pause is growing as the data comes in,” said one of the sources, who asked not to be named.
Several sources said they believe the odds are evenly split between a rate hike and a pause, while a smaller number believe a pause is more likely.
But none of the sources said they saw another interest rate hike as the most likely outcome.
An ECB spokesman declined to comment.
WORK NOT YET FINISHED
All sources agree, however, that in the scenario of a pause, the ECB will have to make it clear that its work is not yet finished and that a new monetary tightening could still be necessary.
They estimate that it could take months, probably until the beginning of 2024, to be confident that inflation in the eurozone is heading towards the ECB’s 2% target.
The sources also agree that the debate remains open and that no decision will be made before the publication of the next inflation data on August 31st.
The next ECB monetary policy meeting will be held on September 14.
Markets are betting on an equal chance of another rate hike or pause next month but expect the ECB to hike another 25bps, to take the deposit rate to 4 %, by the end of the year.
The case for a pause builds on growing recession fears, rapidly deteriorating economic prospects in China, tepid wage growth and the perception that previous rate hikes are materializing in the US. real economy.
The manufacturing sector has been in recession almost since the start of the year and now services, the engines of growth in the euro zone, are starting to slow down, the latest PMI activity indices showed.
Some ECB officials, however, believe that the PMI data should not be over-interpreted, pointing to the widening gap between the indicators and the confidence indices.
“Companies are indicating a recession, but they are not behaving as if it is; they are continuing to hire workers,” observed one of the sources.
Those who argue for another interest rate hike point out that core inflation has only plateaued and that a steeper pullback is needed to contemplate a pause.
(Report Balazs Koranyi, Blandine Hénault for the French version, edited by Kate Entringer)
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