The ECB Should Take a Page From the Fed’s Playbook

  • Date: 01-Sep-2021
  • Source: Washington Post
  • Sector:Financial Markets
  • Country:Gulf
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The ECB Should Take a Page From the Fed’s Playbook

Although European Central Bank President Christine Lagarde did not present at this year’s virtual Jackson Hole symposium, the Federal Reserve’s annual central bank policy forum, she was surely paying close attention.

One message in particular from Fed Chair Jerome Powell’s address could be very useful for her to replicate — that of using forward guidance to separate any early attempt to taper quantitative easing from an eventual hike in official interest rates. Keeping the unconventional bond purchases method distinct from the conventional tool of central bank policy would give the ECB what it desperately needs: time.

This is, of course, only a rhetorical device. Reducing any form of monetary stimulus leads to interest rate speculation — the two are inextricably linked in the eyes of the money markets. But it is a cunning move to buy more time to assess how sustainable the pandemic recovery is and whether current higher inflation proves to be transitory. Whisper it, but central bankers have no more clue about this stuff than the rest of us.