–Markets Seem to See ‘Something Larger Than Simply Trade Disputes’
(MaceNews) – Here are some highlights of European Central Bank President Mario Draghi’s question and answer session Thursday:
–Markets seem to see “something bigger than simply trade disputes.” We “have to take this reading seriously and be prepared.”
–Don’t see signs of de-anchoring of inflation expectations nor see signs of any deflation. All policies are oriented toward a set of market based expectations more consistent with convergence toward objective.
–Even without an employment mandate, 10 million jobs have been created over 5 years. Do you need jobs mandate apart from mandate for price stability?
–The Bank of England saying “even rate hikes might be necessary” so policy differs and job is to reach consensus should “contingencies arise.” Regardless of a central bank’s mandate, by and large central banks have achieved the same outcomes.
–The reaction function of the ECB has been “well understood.” My successor’s approach is very difficult to anticipate and “in any event it’s the governing council that decides.”
–Use of forward guidance has been “quite effective” in steering market expectations and has become the major policy tool.
–Current conditions “not even comparable” to conditions slightly less than seven years ago. Have had a decline in unemployment and growth in employment with rising wages. But “have to be prepared.”
–Rising threat of protectionism and other factors seem to “rule out any increase in rates.”
–Since the financial crisis, other challenges and now threats of protectionism the new normal has been the absence of normality.
–Must ensure monetary policy remains supportive even when the rest of the world’s contingencies worsen and make it more difficult. Otherwise there would be “acceptance of defeat.”
–European manufacturing potentially hit by weakening trade growth. Key issue is “how long” can rest of economy be insulated from weak manufacturing?
–Some sentiment for rate cuts (in deposit facility) though forward guidance is for stable rates.
–Sees “increased and prolonged uncertainty.
–“Ample degree of monetary accommodation is still necessary.”