In the run-up to Thursday’s Governing Council meeting in Frankfurt, policy makers spent the afternoon trying to give as little information as possible about one of the most important questions in global monetary policy — how the European Central Bank will extend, adjust or wind down its program to buy 80 billion euros ($88 billion) a month of debt – President Mario Draghi has set himself up for another exercise in expectation management at the next meeting on Dec. 8. Draghi will probably give a rendezvous to December, but on balance, it’s too early and he may just say that all options are on the table.
“They put a lot of pressure on themselves and on us for the December meeting“,
said Holger Sandte, chief European analyst in Copenhagen. The euro fell to its lowest since March after Draghi’s guarded appearance, and was trading at $1.0908. The topics deemed out of bounds included future rate cuts, extending bond-buying and tapering the program — or even whether those topics will be on the December agenda.
As Draghi noted, the eventual decisions will also be affected by global economic and political uncertainty that pose “downside risks” to the currency bloc. Convergence of inflation back toward the target of just under 2% must be sustainable and durable. The timeline now is pretty clear: the ECB will continue to buy for quite some time, markets should be reassured, but there may be a lot of obstacles along the way.
source information: Bloomberg.com
The major sources of uncertainty do not come from the ECB. If we have an accident, and that is quite possible, then they could go for longer. The situation now is very, very open. If Draghi can go into what some of the negative side effects are and how to avoid them, that could help set the stage for more stimulus in December if it is needed.
J. Mason ♦