Why Short-Term Financial Stresses Could Actually De-Stress The ECB In The Long Run

Summary

• Peaks in systemic stress generally result in recession and lower inflation down the line.
• So, the ECB's work will be done if financial conditions continue to tighten and economic activity contracts. But then again, last year’s spike in stress so far has not brought any of that.
• We have not seen stress reach worrying levels yet, meaning that we expect the ECB to continue to hike at the next two meetings.

Thomas Lohnes/Getty Images News

By Bert Colijn, Carsten Brzeski

Following the bankruptcy of Silicon Valley Bank (OTC:SIVBQ), financial stress spiked globally as concerns about the banking sector emerged. Even though events have not specifically impacted eurozone banks (other than share