Base case is a hike in June, not April. ECB needs evidence of second-round effects; higher inflation alone is insufficient. There is an implicit bias to tighten.

Agrees with market pricing out April. June is still priced in and is a reasonable base case.

Significant Eurozone slowdown is a reasonable base case, but no recession. Higher inflation means lower growth via sentiment effects, delayed investment, and real income issues.

Strong momentum was present, which is an important offsetting factor.

Current situation is not similar to 2022 (overheating labor market). However, muscle memory and adaptive expectations increase probability of second-round effects.

This is why ECB has a bias to prevent that, acting sooner rather than later, doing less rather than more.

Inflation impact is immediate but can be seen as a one-off relative price shock. Evidence of translation into higher wage demand and core prices will be seen over next 3-6 months.

Need to act preventively to avoid a persistent shock rather than a one-off.

Less fiscal space than in 2022. No massive fiscal expansion expected, which will contribute to lower demand.

This will limit the extent of ECB tightening needed.

ECB starting point was neutral (inflation at 2%). Fed still has bias to cut, but that will disappear. Fed is in restrictive territory, has dual mandate, higher tolerance for inflation.

Base case for Fed is no move, neutral bias. Focus on labor market. If labor market deteriorates, cuts come back; if accelerates, risk of hikes.