ECB "Gradualism" won't Last the Summer

We are in a period of extreme central bank action. Globally, 2022 will likely go down as the largest monetary tightening year in over two decades. Central banks are not only leaving their respective lower bounds for more normal levels, but are doing so in an accelerated way. Some developed market central banks are hiking rates at 50bp clips, while others are beginning to consider it.

A big theme for me this year has been the end of negative interest rate policy in Europe and how the market was underpriced for it being a 2022 event. Looking now, with the market priced for more than 100bps of hikes this year, I think the trade is entering a new phase; “acceleration.”

The ECB is going to be where the action is this summer, and Villeroy (Bank of France) just said it yesterday:

“I won’t add my precise calendar prediction to the many existing ones, but expect a decisive June meeting, and an active summer.”