If we take a look at the highlights from Lagarde's press conference;

 

·        Inflation is likely to stay higher than previously anticipated, but will decline later this year.

·        Inflation surprised upwards in January.

·        The economy is less and less affected by each pandemic wave.

·        The ECB is ready to adjust the tools accordingly.

 

At this point, it is seen that the market entered a pricing sequence aimed at the point where the economy is advancing rather than Lagarde's two-sided rhetoric, and now worrying more about inflation. The possibilities revealed by the OIS pricing are weighing on the expectation of a 40 basis point rate hike this year. In projections in December, such a prospect would have been considered "extremely hawkish" for the ECB. However, the issue of energy externalities emerged as a game changer. The ECB is not as comfortable as the US and UK in this regard. Because they do not have access to local resources and are heavily dependent on Russian energy.

 

In fact, Lagarde similarly retired the "no rate hike in 2022" view, just as Powell had said "inflation is temporary". Members of central banks are now afraid of creating policy-induced inflation, and this trend is making them uncomfortable. Hence, the views towards abandoning the lax policy are increasing. Only Lagarde and Powell do not want to make a policy mistake in the transition period and cause a hard landing in the economy. Draghi's stance that keeps interest rates low for a long time or the crisis effect in Trichet's period are actually a replica of economic reservations. The reason is this: the Eurozone is a financial and monetary union. The economic structures of countries with different dynamics should be taken into account while making decisions. Therefore, the Fed > BOE > ECB image is very likely at the point of economic flexibility and proactivity. It should also be taken into account that the ECB prefers smaller scales in interest rate movements rather than traditional bands. There is an ECB that will tighten, but not as fast as the Fed.

 

The ball went to core inflation, partly due to energy externalities, and the ECB hopes to make a deeper assessment in March. It is certain that the Fed will raise interest rates in March, our question is how much? We will watch the tightening, which the ECB tries to give the appearance of a gradual transition in its behind-the-scenes image.

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