Konstantin Veit, an expert in monetary policy for Pimco, believes that continuous risks of inflation suggest the European Central Bank (ECB) could implement up to two rate hikes this year. Speaking to the “Handelsblatt”, Veit noted that this trajectory, totaling 50 basis points, represents a slightly more modest expectation than what is currently priced into the financial markets.
Veit attributed the potential rate increases to several factors, including the ongoing conflict in the Near East, elevated inflation expectations, and a core inflation level that has yet to fully normalize. He emphasized that the primary mandate of the ECB is inflation control, rather than promoting economic growth, making moderate rate adjustments a logical response from the central bank’s perspective.
However, Veit cautioned against anticipating the aggressive cycle seen after the inflationary surge triggered by Russia’s attack on Ukraine. He stressed that the current environment differs significantly from 2022. He pointed out that the labor market is weaker, fiscal policies are less expansionary in nature, and monetary policy is no longer defined by negative interest rates or large-scale asset purchases. According to Veit, therefore, a single to double-digit step hike is more likely a measure of prudent risk management.
