sheet, qe amounts to transforming long - term liabilities into overnight ones ( bank reserves ). the resulting transfer of the interest rate risk away from private sector balance sheets quickly becomes a costly proposition when policy rates must be raised. 11 central banking today is a loss - making operation, something the public and some academics have a hard time accepting. here again, jens ’ early warnings impacted my thinking. as early as mid - 2020, he reminded us that “ large - scale purchases of government bonds are associated with the risk of blurring the line between monetary and fiscal policy ”. 12 8 bloomberg, 22 march 2023, “ ecb ’ s wunsch wants time to assess if rates need to rise further ”. 9 wunsch ( 2024a ). 10 schnabel ( 2023 ). 11 hall and sargent ( 2022 ). 12 weidmann ( 2020 ). 2022 : i became a “ hawk ” in the eyes of analysts and inflation ultimately came back with a vengeance! with the pandemic behind us, a surprisingly strong recovery hit supply chains that were still under stress, and price pressures inevitably unwound. i quickly called for higher policy rates, a development that prompted many analysts to conclude decisively that i had aligned myself with the hawkish camp. in the face of mounting inflationary pressures, our workhorse models supported a narrative of temporary developments that did not warrant a policy shift. the accumulation of inflation forecast errors nevertheless encouraged me to question openly the dominant view. 13 in early 2022, i characterised the return of nominal interest rates to zero or above by yearend as a “ no - brainer ”. 14 by mid - 2022, russia ’ s aggression in ukraine had propelled energy prices in europe to historic highs. as inflation continued to outpace expectations, the textbook - ish “ look through ” advice appeared to be increasingly inadequate. i called for a hike of at least 200 basis points to bring real rates to zero, a level at which monetary policy was unlikely to harm economic prospects ( monetary policy would be considered broadly neutral ), while signalling a clear resolve to deliver on our 13 see e. g. mni, 13 october 2021, “ ecb risking wrong inflation message ”. 14 reuters, 5 april 2022, “ ecb could raise interest rates back to zero this year – wunsch ”. mandate. 15 still, that judgment call had to be made under exceptional uncertainty. estimates of the neutral

news conference berne, 16 june 2022 andrea m. maechler introductory remarks by andrea m. maechler i will begin my remarks with a review of developments on the financial markets over the past half - year. i would then like to discuss the lowering of the threshold factor mentioned by thomas jordan. situation on the financial markets volatility on the financial markets has increased again significantly since the beginning of the year ( cf. chart 1 ). this was driven by the sharp rise in inflation abroad and by attendant expectations regarding a speedier tightening of monetary policy – especially in the us. indeed, the fed has already raised the target range for its federal funds rate in several increments and signalled its intention to increase rates further. in addition, the war in ukraine and the associated sanctions have exacerbated existing supply bottlenecks and led to surges in energy and commodity prices. these developments have dampened growth expectations and increased uncertainty on the financial markets. on the government bond markets, the change in monetary policy direction has had a pronounced impact. in the us, nominal ten - year treasury yields have risen almost 2 percentage points since the beginning of the year and most recently were standing at well above 3 %. shorter maturities were particularly affected by this revaluation, with a narrowing of yield differentials between long and short maturities. such a flattening of yield curves is typical in a period of rising inflation and interest rate expectations. in the euro area, the corresponding yields on german government bonds also rose by almost 2 percentage points to about 1. 7 %. the rise in yields was similar in switzerland, with ten - year confederation bonds yielding around 1. 3 %, their highest level in more than ten years ( cf. chart 2 ). in the us, the monetary policy realignment led to a considerable increase in inflation - adjusted bond yields, or real yields. for instance, real yields on ten - year treasuries have risen by more page 1 / 4 berne, 16 june 2022 andrea m. maechler news conference than 1. 5 percentage points since the beginning of the year and are now back at just above 0 % for the first time in more than two years. in historical terms, however, this is still very low. on the stock markets, too, the expectations of a tightening of monetary policy and the heightened uncertainty resulted in price corrections. the leading share indices have recently been trading at well below their levels at the