They appear to be hoping for inflation to come down magically and to be more worried about another sovereign debt crisis in the euro area.
For instance, the yield spread of 10-year Italian and German government bonds has risen to 2.5% over the course of the last few days (the spread is a measure of stress in European markets), and the ECB has not announced anything serious yet.
In light of that decision and a hawkish Fed, the euro depreciates against the US dollar, and it has lost 8% against the US dollar this year alone.
With the euro depreciating, imported goods for the consumer and producers, are becoming more expensive, which translates into higher prices and, in the aggregate, higher inflation. In a sense, the inaction of the ECB directly contributes to higher inflation.
As I have been saying before, there are 21 million reasons not to hold your savings in euros, which continues to hold.
As opposed to the ECB, the Fed is taking more action and/or at least pretending to fight inflation. It has already raised interest rates and will raise rates again tomorrow (Wednesday).
While a hike of 50bps was the most likely scenario last week, as of today, the chance of a 75bps hike has increased to 94,8%, according to the CME Group’s Fed Watch tool.
This is following the release of the CPI numbers in the US that came in at 8.6% year-on-year above expectations (expected 8.3%; fastest increase since December 1981).