[ANALYSIS] ECB’s Chief Economist Lane speaks on Bottlenecks and Monetary Policy – takes a dovish tone, overall

• Overall, the Chief Economist took a dovish view of bottlenecks and price pressures. Lane did not explicitly mention the March forecasts or the recent Bloomberg sources piece that flagged additional officials distrust the inflation forecasts.


• Lane writes that as bottlenecks will eventually be resolved price pressures will therefore abate and as such inflation return to trend, without the need for a significant adjustment in monetary policy – here, it is worth noting the word “significant” as it still leaves room for a policy adjustment, even under such an abatement of inflation. His view on bottlenecks easing is justified, and Lane highlights, that PMIs have suggested some easing of supply disruptions can be expected.


• Regarding gas prices, the Chief Economist pushes back somewhat on the validity of elevated prices at this moment in time given the geopolitical situation, saying "it should be emphasised that futures prices also incorporate risk premia, so these do not necessarily capture a “true” expectation of future prices, and geopolitical tensions (together with weather-related uncertainty) mean that risk considerations are especially pertinent at the moment."


• Finally, on the labour market and firstly wages. Lane, unsurprisingly, notes that second-round effects should be closely watched in case these become apparent in wages – however, earlier in the session de Guindos highlighted that second-round effects are not very relevant currently. In terms of the labour market itself, Lane remains dovish, writing that there are “no indications of aggregate overheating in the euro area labour market.", and went further by adding that vacancies/unemployment and other indicators "suggest that the labour market has not fully recovered."


• Overall, Lane takes a dovish stance, though this is perhaps not too surprising given his known stance as a dove, but it is notable that his blog post takes a similar tone on some of the key angles for monetary policy at present.


• Note, we expect the cut-off date for the March projections to be February 15th/16th and attention is firmly fixated on the next ECB Staff update, due March 10th,  given the guidance from Lagarde at the February meeting.


• Next up on the ECB schedule is Knot, though he is a known Hawk and has already remarked that an end-2022 hike is a possibility.

10 Feb 2022 - 14:00- Research Sheet- Source: Newsquawk