Taps Coogan – July 21st, 2022

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Today, for the first time in 11 years, the European Central Bank has officially raised rates. The rate hike, 50 basis points, takes its benchmark refinancing rate back to zero for the first time since 2014.

The move comes as inflation in the Eurozone hits 8.6%, the highest rate since the introduction of the Euro currency and the 12 consecutive monthly overshoot of the ECB’s 2% inflation target.

For a sense of how non-symmetrical monetary policy has become, despite this being the largest and second-longest inflation overshoot in the Euro’s history, the ECB benchmark rate was 3.75% in 2000 when inflation was barely over 2%.

Nonetheless, there is enormous psychological significance to the long belated move to abandon negative interest rates. Will the interest rates lows of the past year prove to be the generational lows of the great bond bull market that started in 1981? With the Eurozone already teetering on recession, it’s not hard to imagine that this ‘tightening cycle’ is already nearly over.

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