FRANKFURT, Oct 5 (Reuters) – Surging energy costs, higher yields and shrinking budget support could all weigh on economic growth and may limit how much the European Central Bank needs to \u200ctighten policy to quell price pressures, Philip Lane, the bank’s chief economist, said. <\/p>\n
The ECB has raised \u200cinterest rates twice this summer as inflation surged to nearly twice its 2% target, and policymakers are now debating just how much \u200bmore they would have to do given high energy costs and surprisingly resilient growth. <\/p>\n
Lane said that while the recent wave of energy price increases was creating a clear upside risk for inflation, other factors were proving a drag, so the bank’s policy of a ‘measured’ response to high inflation remained appropriate. <\/p>\n
Among the drags, he said high energy \u200ccosts, lower budget support and the \u2060recent surge in market-based borrowing costs would all weigh on the economy by curbing demand. <\/p>\n
“While growth has been holding up this year, the fiscal impulse is projected to \u2060turn from positive in 2026 to negative in 2027 and 2028, and the notable recent increases in long-term interest rates will slow growth and reduce pass-through by more than projected,” he told a conference in Frankfurt. <\/p>\n
The jump in \u200bAI-related investment \u200bwas a positive for the economy but tech companies \u200bwere borrowing so heavily to fund their oversized \u200cinvestments that this added to the upward pressure on interest rates, Lane said. <\/p>\n
“All else being equal, these ‘demand destruction’ channels can limit the required adjustment in the monetary stance to ensure the timely return of inflation to the target,” he said. <\/p>\n
Lane, however, did not comment on the next policy move and said decisions will be taken meeting by meeting. <\/p>\n
VOLATILE RATE HIKE EXPECTATIONS <\/p>\n
Financial markets see another two to three rate hikes from the \u200cECB in the coming year but these expectations are highly volatile \u200bas four moves were fully priced in less than a \u200bweek ago before an abrupt repricing. <\/p>\n
Lane also argued \u200bthat there has been no upward shift in medium-term inflation despite the near term \u200csurge, an argument Bundesbank President Joachim Nagel \u200bappeared to back. <\/p>\n
“There are so \u200bfar no clear signs that inflation has fed through to price and wage setting,” Nagel said in a speech in Sorrento, Italy. “Longer-term market-based and expert expectations remain consistent with the Eurosystem’s 2% inflation \u200btarget.” <\/p>\n
Still, Nagel too warned that risks \u200cto inflation were to the upside as natural gas prices could still go higher, refinery \u200bcapacity destruction put pressure on margins and food prices were also under upward pressure. <\/p>\n
(Reporting by \u200bBalazs Koranyi; Editing by Alexandra Hudson and Toby Chopra) <\/p>\n","protected":false},"excerpt":{"rendered":"FRANKFURT, Oct 5 (Reuters) – Surging energy costs, higher yields and shrinking budget support could all weigh on…\n","protected":false},"author":2,"featured_media":636948,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[6638,114,357,184,268,13368,85,4141,13516,9445,46,2450,8553,9331,266,13517,4861,688,5615,13369,13370,5268,13518,270,13519],"class_list":["post-636947","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business","tag-401k","tag-business","tag-business-news","tag-economy","tag-finance","tag-financial-information","tag-il","tag-investing","tag-investment-tools","tag-investor","tag-israel","tag-market-news","tag-mortgage","tag-mutual-funds","tag-personal-finance","tag-quote","tag-real-estate","tag-retirement","tag-stock","tag-stock-research","tag-stock-valuation","tag-stocks","tag-suze-orman","tag-tax","tag-track-portfolio"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/636947","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/comments?post=636947"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/636947\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media\/636948"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media?parent=636947"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/categories?post=636947"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/tags?post=636947"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}