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:
Not confident
Comment:
Given that Eurozone headline and core inflation rates were close to 9% and 6%, respectively, in January 2023, the ECB should raise the policy rate much higher than 3.5% in 2023. If the fight against inflation is lost, the ECB’s reputation will be damaged for years to come. As a result, it is likely that the MRO rate will be raised to above 3.5% in 2023.
Question 1: How likely is it that peak headline euro area inflation is behind us?
Answer:
Roughly even odds
Confidence level:
Not confident at all
Comment:
The outlook for inflation in the Eurozone is extremely uncertain, so it is currently impossible to tell whether inflation has reached a turning point. This uncertainty is due to several important factors, including the ECB's willingness to continue to raise interest rates, fiscal risks and ongoing developments in the war in Ukraine.
Question 3: Under its current policy trajectory, with rates peaking at 3.5%, which of the following is most likely?
Answer:
ECB policy interest rates will be too low in 2023.
Question 2: Should the ECB respond to movements in the euro-dollar exchange rate of the nature observed in 2022?
Answer:
No
Confidence level:
Very confident
Comment:
The ECB should focus on stabilizing inflation and real activity in the Eurozone.
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:
Very confident
Comment:
The ECB's more cautious policy rate hikes (relative to the Fed's response) were most likely a key factor behind the euro's weakness in 2022. This more timid ECB reaction reflects both real and financial factors: for example, the Russian war of aggression against Ukraine is having a more detrimental effect on real activity in Europe (than in the U.S.); similarly, the public finances of key Eurozone member countries remain very fragile, and could be destabilized by sharp interest rate hikes.
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?
Pages