Lagarde warns against optimism in financial markets

Lagarde warns against optimism in financial markets

Christine Lagarde

The President of the European Central Bank stated that inflation will also be above target in the next two years.

(Foto: Bloomberg)

Frankfurt ECB President Christine Lagarde believes that the financial markets may be overly optimistic about the economic outlook. “This leaves valuations vulnerable to a range of potential downside surprises, whether it be growth, inflation, monetary policy or corporate earnings,” Lagarde warned in a statement Friday at the International Monetary Fund’s (IMF) annual meeting in Washington. “Elevated vulnerabilities remain even in real estate markets, where the potential for a price correction has increased,” she added.

The Frenchwoman explained that inflation in the euro area will also be above the ECB’s target in 2023 and 2024. It is far too high and will remain above the ECB’s target for a long time. The risks are still mainly on the upside. Lagarde mentioned the possibility of further disruptions in energy supplies.

In the medium term, the ECB is aiming for two percent inflation as the optimal value for the economy. But the central bank is a long way from that: the rate of inflation jumped to 10.0 percent in September – the highest rate since the introduction of the euro.

In the fight against high inflation, the ECB initiated the turnaround in interest rates in July and has already raised key interest rates twice. “The Governing Council expects interest rates to rise further in the coming meetings based on a data-dependent, meeting-by-meeting approach,” she added. The next rate meeting is on October 27th.

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