While some areas of the world have a relaxed attitude to fiscal and monetary policy, Europe, and much of the developed world, puts too much emphasis on tightening, according to Valentijn van Nieuwenhuijen, head of strategy at ING Investment Management.
“The (European Central Bank) has signaled that it is on the verge of tightening, and with all this fragility still in the system, and as far as we can see very little solid analysis that suggests that we need to start hiking rates right now, it seems to be emotionally driven,” van Nieuwenhuijen said.
Inflation risks are exaggerated by policymakers in an attempt to shore up credibility rather than tackling a real inflationary threat, he said.
“While policymakers really think there are some risks on the horizon I don’t think they can back it up with solid analysis it’s more a fear for credibility and showing off to the fiscal policymakers that they need to be tough,” he said.
He argued that interest rates need to be compared to the underlying fundamentals rather than their historical average.
"Of course central banks want to be ahead of the curve, but that also doesn’t mean that if there is very little evidence of any risks going forward that you also should preempt," he said.
"A real inflationary problem is only there if you get that mechanism from a certain increase in prices to inflation expectations to a broadening out in general price increases," he added.