Crack in tightening at the European Central Bank

Despite concerns about a recession, the European Central Bank, which raised interest rates to their highest level since 2009, reported that unanimity was not reached on the interest rate decision. There are cracks within the bank regarding the tightening path and balance sheet. There are signs that the European Central Bank (ECB), which raised interest rates by 75 basis points once again on Thursday, is experiencing disagreements on the pace of interest rate hikes and the need to shrink its balance sheet. According to sources familiar with the matter who spoke to Bloomberg, the ECB members did not unanimously approve the 75 basis point rate hike, with three members voting in favor of a 50 basis point rate hike. Members also discussed whether to signal future rate hikes. Sources who spoke to Bloomberg indicated that some ECB members discussed including an assessment of “advancing to a neutral rate” in the text, while concerns were also expressed that this view “could be misunderstood as a slowdown in interest rate hikes.” While the ECB decision text stated that interest rate hikes would continue in future meetings, no signal was given regarding the extent of the increases. According to sources speaking to Bloomberg, the ECB does not plan to announce the start date of the balance sheet reduction in December. Following the news, the Italian 10-year yield fell by 33 basis points to below 4 percent. ECB President Christine Lagarde announced in December that members would discuss the balance sheet reduction and decide on the main principles. Lagarde: Slowdown will deepen European Central Bank President Christine Lagarde stated that economic activity slowed significantly in the 3rd quarter and will probably slow further in the 4th quarter and the 1st quarter of 2023. “We expect further weakening in the rest of this year and early next year,” Lagarde said at a press conference after the ECB announced its interest rate decision. Lagarde stated that the risks to the economic growth outlook are “clearly on the downside.” Referring to the Ukraine war, Lagarde predicted that supply-side problems could worsen