European central banks seem ready to join the Federal Reserve on a cycle of tighter monetary policy. But their actions may have more to do with the misguided attempt to throw “shock and awe” at inflation expectations than a true commitment to higher interest rates.
On Thursday, the Bank of England raised rates for the second time in a row, bringing them to 0.5%. Shortly after, European Central Bank President
Christine Lagarde
opened the door to nudging up borrowing costs later this year. Derivatives contracts, which were already suggesting one rate raise by the ECB in 2022, have started pricing in two of them. The euro has gained more than 1% against the U.S. dollar, and 10-year German government-bond yields jumped from zero to almost 0.2% Friday. U.K. markets have been a bit more restrained.
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