Shenabel says that the European Central Bank must maintain

(Reuters) -The European Central Bank should stop reducing borrowing costs, as the unrest in the global economy is to feed the price pressures and inflation was at risk of a 2 % over the medium term.

The interest rates of the European Central Bank reduced seven times last year with inflation rapidly declining, and politicians have already begun to have a foundation position to reduce another on June 5, as the deposit rate increased to 2 %.

Shanabeel, a frankly wallet policy, poured cold water on these expectations, which makes a clear argument to maintain rates unchanged because they are already low enough to not curb the economy.

“It is now time to maintain a fixed hand,” Shenabel said at a conference at Stanford University. “The appropriate path to work is to maintain the rates close to what it is today – that is, firmly in a neutral area.”

Financial markets sees a 90 % chance to reduce a rate in June and see another or two months in the subsequent months, indicating that the view of Shenabel is inconsistent with investor bets.

The complications of politicians are that the short -term and medium -term inflationary forces are completely different.

In the short term, inflation can decrease to a 2 % less than the goal of the European Central Bank, given the low energy costs, the strong euro, the economic growth of anemia, and the high uncertainty established by the US administration’s trade war, according to Shanabel.

But monetary policy affects the economy with a long delay, and by the time when the facilitation of additional policy affects the economy, clouds on inflation may fade, replaced by completely different powers that rise in costs.

Inflation can be strengthened by an expected increase in government spending, driven by Germany’s pledge to enhance investment in defense and infrastructure. But more importantly, the fragmentation of trade, a secondary result of the definitions imposed by the United States, can also lead to increased costs and increase prices.

“In the medium term, the risks of inflation in the euro area are likely to have a bullish direction, which reflects all the increase in financial spending and the risks of regeneration of the cost of customs tariffs that are published through global value chains,” Chanabel said.

Even Shanabel challenged the argument that American definitions without European revenge are a clear shrinkage to the euro area.

“Even if the European Union is not divided, the high costs of production transported through global value chains can compensate for more than the fading pressure coming from the decrease in foreign demand, which makes inflationary definitions in general,” Shanabel said.

Revenge, as the block has already shown, only pumps this process and maintains pressure on prices more.