–Both CenBanks Expected to Adjust Policy in December
–Fed’s Powell Sees More Tech-Oriented, Less Job-Oriented Recovery
By Laurie Laird
LONDON (MaceNews) – Europe’s top central bankers welcomed the positive news on a Covid vaccine unveiled earlier this week, but warned that the region faces more economic pain before an inoculation becomes widely available.
European Central Bank President Christine Lagarde acknowledged that policy makers are “seeing a little less uncertainty on certain fronts” after conclusion of U.S. election and development of Covid vaccine. However she added that she did not “want to exuberant about the vaccine,” given uncertainties over the production and distribution of large volumes of the jab.
Lagarde was addressing an ECB forum, an annual event usually held in the Portuguese city of Sintra, taking place virtually this year. She was joined at the conference by fellow central bank luminaries Jerome Powell of the U.S. Federal Reserve and Bank of England Governor Andrew Bailey.
The ECB is conducting a strategy review and has spoken of its intention to “recalibrate” monetary policy when it meets next month. The Bank forecasts a 3.4% fall in fourth quarter output following renewed economic lockdowns in many of the eurozone’s largest economies.
Economists expect further policy action before year end. Earlier this week, Governing Council member Klaas Knot stressed that he does not believe record low interest rates – the Bank’s marginal lending rate stands at 0.5% – have reached the so-called reversal rate, at which further cuts backfire by discouraging commercial bank lending.
Lagarde did encourage eurozone banks to be conscious of the balance sheets of creditors, predicting that “there will be bankruptcies …in certain sectors,” despite the unprecedented sums of government support provided to business and consumers to combat the Covid-related slowdown.
The BoE’s Bailey voiced similar caution over the vaccine news, noting that recent medical advances may eventually “reduce uncertainty,” but “we’re not really there yet.”
His wariness did nothing to dampen speculation that the Bank of England is poised to ease policy when the rate-setting Monetary Policy Committee meets next month, not least because the UK has yet to agree a trade deal with the EU ahead of its exit from the bloc on 31 December.
BoE forecasts are predicated on an orderly transition to a new free-trade regime with its biggest trading partner, an outcome that is looking less certain as 2019 draws to a close. There is “every reason to hope for and encourage a trade deal,” but he refused to “prejudge” whether a deal is possible.
Bailey spoke hours after the news that the UK economy expanded by a record-high 15.5% in the third quarter, but the rebound still left Britain lagging behind its peers. UK output remains 9.7% below its late 2019 level, while the EU was 4.3% down at the end of the third quarter, and U.S. output stood 3.5% below pre-pandemic levels.
Federal Reserve Chair Jerome Powell for the most part limited his participation to previously expressed views that fiscal pandemic relief has been vital to replacing lost income and forestalling worse permanent damage from the pandemic’s economic damage. He sees a recovery into a more technology-oriented economy to the disadvantage of those lower on the income scale, minorities and women.
“We’re recovering, but to a different economy,” he said. “There’s going to be a substantial number of workers who are going to need support as they find their way in the post-pandemic economy, because it’s going to be different in fundamental ways.”
—
Contact this reporter: laurie@macenews.com.
Content may appear first or exclusively on the Mace News premium service. For real-time email delivery contact tony@macenews.com. Twitter headlines @macenewsmacro.