ECB Officials Warn Against Market Optimism, Discuss Maintaining 4% Interest Rates, Early Wind Down of Covid Bond-Buying Portfolio

ECB officials, Pierre Wunsch, Pablo Hernandez de Cos, and Francois Villeroy de Galhau, have expressed concerns about market optimism ruling out further interest rate hikes. Wunsch warned that bets on rate cuts could lead to a hike, while De Cos considered discussions on rate cuts premature. Villeroy indicated that the ECB might maintain 4% interest rates for several quarters and wind down its Covid bond-buying portfolio earlier than planned, possibly before the end of 2024. He also warned of renewed bond volatility and a solid disinflationary trend, while expressing concerns over excessive reliance on forward guidance and the necessity to avoid a recession.