Opinion | Christine Lagarde, president of the European Central Bank, is not addressing the problem. Adrian Hostaled from @xtbes

MADRID. Following recent comments from the head of the European Central Bank (ECB) at the Davos Economic Forum, with which he practically confirmed the first rate cut in the summer – in June or July –, there was an expectation of a meeting on January 25th. The reason was nothing more than a desire to explain this in more detail and perhaps add some comment or nuance to their words that would give more clarity to the policies they want to pursue in 2024.

The conclusions of this meeting are that the ECB is maintaining interest rates at current levels. The body, chaired by Christine Lagarde, leaves the three main indicators of the price of money (the deposit rate, the lending rate and the marginal lending rate) unchanged and thereby already links the three pauses in rates. We forecast a rate cut in 2024; actually The market is allowing for up to four declines and a 70% chance the first will occur at the meeting scheduled for April.

In the meantime, we will continue to use a deposit rate of 4% and a lending rate (the most important) of 4.5%.

In her subsequent appearance, Lagarde mentioned her famous “data addiction” several times. making it appear that he will constantly analyze macroeconomic variables in order to make appropriate decisions; and in the same way he encouraged us to go to meetings. Journalists insisted, but she did not give an exact date for the start of the rate cut and did not want to leave the final phrases for the newspaper library, as often happens with her colleague Jerome Powell.

On the other sideThe delicate issue of the organization’s employees’ trust in their president came to the fore., and allowed us to see the most revealing version of Lagarde. He did this in an attempt to rally ranks regarding the unity of his members and their satisfaction with their work, and by adding that they were here to serve the Europeans.

The President verbally gave us a list of parameters that she pays attention to that go beyond inflation.. Lagarde cited energy commodity prices, supply chain bottlenecks, geopolitical tensions in the Red Sea, maritime transport difficulties…

Pressure on wages

But all this has repeatedly contributed to what has become the subject of debate, and that is nothing less than pressure on wages. This indicator is a priori the main reason why the ECB continues to delay interest rate cuts.. And last Wednesday Lagarde could be seen holding him responsible for the slow pace of decline in core inflation.

In parallel, Rising labor costs look set to be a key variable in the coming months as Europe’s powerhouse economyGermany has already shown a contraction of 0.3% in 2023 and there are worries about the next Eurozone data that we will have to be very careful about.

Adrian Hostaled – XTB Analyst