Fabio Panetta spoke in Turin and described recent debt market moves as global, with the United States at the epicenter. He said growth and inflation in the United States have exceeded expectations, while growth in Europe is weaker.
He warned that the recent rise in bond yields will act as a brake on the euro-area economy and said, "This is not a crisis, but it is a drag on growth." He added, "The problem is that in the US, higher interest rates are accompanied by stronger growth, while growth in Europe is less robust."
Panetta said higher long-term interest rates in the US produce spillover effects into other markets and that "When long-term interest rates rise in the US, we see spillover effects into other markets, including Europe," adding, "This also affects financing costs in Italy." He is aligned with other ECB officials who warned that tighter financial conditions could curb economic growth and noted slower growth might help rein in inflation.
The article says inflation has been pushed to almost double the 2% target.
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Policymakers are in a one-week quiet period and are not allowed to comment on monetary policy before their meeting next week, where they are expected to leave interest rates unchanged. For your portfolio, keep an eye on how higher yields and tighter conditions affect borrowing costs and growth-sensitive holdings.
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