Share this discussion
Interest rates set to rise by more than expected: will they kill the housing market? Is the ECB about to make yet another big mistake? 'Boris Johnson is like a shopping trolley with a wonky wheel'.
cjpeconomics.substack.com
|
2 Comments
© 2024 Jim Power & Chris Johns
Substack is the home for great culture
Hi Lads. Still loving the podcast. I find it really useful to hear the perspectives of local businesses.
Regards ECB policy, I think you’ve hit the nail on the head. If you’re earning in a sector with a competitive labour market (where isn’t these days?), then the ECB following a sensible policy path shouldn’t be much to worry about for mortgage holders. Rates increase, mortgage payments increase, but that’s all because wages are increasing too, including yours! It’s all relative. In fact, it would be a great thing for social progression.
But what the ECB are doing is trying to cause deflation of other prices to offset the higher inflation from energy and food sourced at prices set outside the eurozone, so in aggregate it’s getting back on track to 2%. That’s rate hikes without the wage rises.
You mentioned on a previous podcast, that central banks are legally mandated to follow that target. If you were a fly on the wall in those ECB meetings, do you suspect there were discussions about balancing the economics versus the politics of following that mandate, with politics beginning to win out? Or is the ECB decision purely driven from bad economics?