Tariffs create stagflationary shock in long term, ECB's Knot says
AMSTERDAM, April 9 (Reuters) - U.S. President Donald Trump's sweeping import tariffs are likely to have a stagflationary impact in the long term, driving up inflation while economic growth stalls, ECB policy maker Klaas Knot said on Wednesday.
"A trade war is a negative supply shock. It is a stagflationary shock," Knot said at a conference at the Dutch central bank in Amsterdam.
"It is likely that as time progresses, the impact will become more inflationary rather than deflationary," Knot added, pointing also to the surge in government spending by Germany and the need to invest heavily in European defence.
Knot said the main task for the ECB would be to assess at what point tariffs start to hit economic activity and business decisions, but he said next week's policy meeting would be too soon to deliver new projections.
Central banks have not had to intervene yet due to the market turmoil caused by the tariff announcements, Knot said.
"Market functioning so far has been preserved," he said.
"The hedge fund sector had already de-levered, they saw this coming. And so they were capable of meeting the margin calls, which was not the case in earlier episodes."
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