ECB’s Nagel Says ‘Much Too Early’ to Consider Rate Hike Pause

ECB’s Nagel Says ‘Much Too Early’ to Consider Rate Hike Pause

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(Bloomberg) — European Central Bank Governing Council member Joachim Nagel said that he’s not convinced inflation is under control enough for a halt in interest rate hikes, with his decision hinging on additional data in the coming weeks. 

“It’s for me much too early to think about a pause,” the Bundesbank chief told Bloomberg TV at Jackson Hole Thursday, adding that he’ll wait for additional figures before making a decision. “We shouldn’t forget inflation is still around 5%. So this is much too high. Our target is 2%. So there’s some way to go.”

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While economic activity is slowing, core inflation remains sticky and the labor market is “really pretty good,” he said. 

The comments come before a mid-September meeting when monetary policy officials are set to decide between pausing interest rates or prolonging a historic tightening campaign. The ECB raised interest rates last month for a ninth time in about a year, seeking to bring inflation back to its 2% target. 

The outlook for the 20-nation euro-area economy has soured in recent months, as the 425 basis points of ECB hikes since July 2022 weigh on growth. While the bloc has so far dodged a recession, Nagel’s native Germany is treading water following a winter downturn amid soaring energy prices.

German Economy 

Nagel said he doesn’t expect Europe’s biggest economy to fall into a recession, citing a better outlook for next year despite a weak third quarter. 

“I hear a lot of talk about Germany, the sick man of Europe. This is definitely not the case,” Nagel said, citing stable private consumption and higher wages for workers. “I’m still pretty optimistic that we will have a soft landing.” 

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A survey of euro-area purchasing managers released this week showed an intensifying contraction in private-sector activity in August, leading investors to bet that the ECB will leave rates unchanged next month.  

While there are growing signs that underlying inflation — currently the ECB’s preferred measure of price gains — has peaked, concerns remain over wages and companies’ profit margins. Eurozone core inflation, which strips out more volatile energy and food components, held at 5.5% in July, with August figures due next week. ECB staff will also present a new round of economic forecasts at the September meeting. 

Meanwhile, Nagel’s Portuguese counterpart, Mario Centeno, urged officials to be cautious for the next policy move, saying that risks are materializing in the region. 

ECB President Christine Lagarde may offer further insight on where rates are headed when she gives a speech in Jackson Hole Friday.

Several officials have said that even if the ECB doesn’t raise borrowing costs on Sept. 14, it could still do so in the months ahead. ECB Chief Economist Philip Lane has said officials will be “very data dependent” and will continue “hunting for clues” in economic data.   

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