Question 2: Relative to market forecasts of the ECB’s MRO rate peaking at 3.5%, which of the following is more likely during 2023?
Answer:
The MRO rate will peak above 3.5%.
Confidence level:
Confident
Comment:
As German 2y bonds hit 3% and the S&P Global purchasing managers’ index outstrips forecasts, the expected sharp rise in salaries will maintain pressure on prices.
Question 1: How likely is it that peak headline euro area inflation is behind us?
Answer:
Unlikely
Confidence level:
Confident
Comment:
The expression attributed to the Portuguese governor of «“at least” a few more rate hikes» should not ignore that major central banks are once again adding liquidity to global financial markets and a US debt ceiling crisis may confront the Fed.
Question 3: Under its current policy trajectory, with rates peaking at 3.5%, which of the following is most likely?
Answer:
ECB policy rates will be appropriate in 2023.
Confidence level:
Not confident
Comment:
Rising non-US central bank flows and investor optimism about growth would keep ECB policy rates appropriate if geopolitical tensions abate but I am not confident that they will.
Question 2: Should the ECB respond to movements in the euro-dollar exchange rate of the nature observed in 2022?
Answer:
Yes, but only in coordination with other central banks
Confidence level:
Very confident
Comment:
central bank coordination has been a feature of the international monetary system since the stagflation of the 1970s and the creation of the euro has made it necessary especially when international political rivalries return and war require NATO attention again. Unfortunately it is not sufficent because of changes in patterns of international trade and investment and new security threats not seen since the 1970s. The political difficulties of the US debt ceiling though not the first this century seem more threatening in a state of war.
Question 1: What was the main cause for the euro’s decline relative to the US dollar in 2022?
Answer:
Monetary policy differences
Confidence level:
Confident
Comment:
real and financial factors were certainly at play but the most evident difference comes from monetary policy differences between FRB and ECB. While there are many examples of transatlantic differences in monetary policy since the creation of the euro, the coexistence of those with financial and real factors is new, as well as the renewed anxiety about the US debt ceiling, which is why my confidence level is Iower than it otherwise be.
The CFM surveys informs the public about the views held by prominent economists based in Europe on important macroeconomic and public policy questions. Some surveys focus specifically on the UK economy (as the CFM is a UK research centre), but surveys can in principle focus on any macroeconomic question for any region. The surveys shed light on the extent to which there is agreement or disagreement among these experts. An important motivation for the survey is to give a more comprehensive overview of the beliefs held by economists and in particular to include the views of those economists whose opinions are not frequently heard in public debates.
Questions mainly focus on macroeconomic and public policy topics. Although there are some questions that focus specifically on the UK economy, the setup of the survey is much broader and considers questions related to other countries/regions and also considers questions not tied to a specific economy.
The surveys are done in collaboration with the Centre for Economic Policy Research (CEPR).
Prospects for Euro Area Inflation in 2023
Question 2: Relative to market forecasts of the ECB’s MRO rate peaking at 3.5%, which of the following is more likely during 2023?
Question 1: How likely is it that peak headline euro area inflation is behind us?
Question 3: Under its current policy trajectory, with rates peaking at 3.5%, which of the following is most likely?
Euro weakness in 2022
Question 2: Should the ECB respond to movements in the euro-dollar exchange rate of the nature observed in 2022?
Question 1: What was the main cause for the euro’s decline relative to the US dollar in 2022?
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