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Konstantin Veit, a macro expert at Pimco, suggests that persistent inflation risks could prompt the European Central Bank (ECB) to implement up to two interest rate hikes this year. According to his remarks to the “Handelsblatt”, these total increases would amount to 50 basis points, falling slightly below current market pricing.
Veit attributed the potential rate hikes to several factors, including the ongoing war in the Middle East, sustained increases in inflation expectations, and core inflation that has not fully normalized. The portfolio manager at the asset management firm points out that the ECB operates under an inflation mandate, not a growth mandate, making moderate rate increases a logical response in the current environment.
However, Veit does not anticipate an aggressive cycle of rate increases, reminiscent of the inflationary surge following Russia’s attack on Ukraine. He emphasizes that the prevailing situation differs significantly from 2022. He notes that the labor market is weaker, fiscal policy is less expansive, and monetary policy is no longer characterized by negative interest rates and massive bond purchases. Therefore, the predicted one or two rate steps primarily serve as a signal of risk management.