European Central Bank Meeting Focuses on ‘Forward Guidance’

Antiquated lunacy, one must be a moron, a Jew or a benefactor of sorts to be buying this economic Super Friends council BS

New York Times – by Jack Ewing

FRANKFURT — Forward guidance might sound like something to mount on the dashboard of a car. But in the world of monetary policy it is a crucial concept, one that will be the focus of the European Central Bank’s meeting on Thursday.

The bank is preparing to ease off on the stimulus it has been providing to the eurozone economy. Among investors and economists, there is intense interest in how quickly it will reduce its purchases of government and corporate bonds, a form of money printing known as quantitative easing.

To prevent market turmoil, Mario Draghi, the bank’s president, wants to give investors ample warning of what is coming. But he also wants to leave room to maneuver if economic conditions change.

Navigating that communications minefield is what forward guidance is about.

The European Central Bank did not announce any policy changes on Thursday when it met in Tallinn, Estonia. But Mr. Draghi was expected to provide important clues about the bank’s intentions at a news conference that began at 8:30 a.m. Eastern, after the policy announcement.

Here is what to listen for:

A Time to Taper

The European Central Bank has promised to continue buying bonds at least through the end of the year “or beyond, if necessary.”

It is the “beyond” part that has analysts worked up.

Some analysts predict that Mr. Draghi may indicate how long quantitative easing will last beyond December, and how quickly the volume of the purchases will be reduced or “tapered.”

Such a statement would be a significant change in forward guidance.

But other analysts think the central bank will not want to commit, at least until its meeting in September, in part because there is still potential for the economy to get worse again.

Mr. Draghi has expressed concern in the past about factors such as Britain’s plans to exit the European Union and the unpredictability of American policy under President Trump.

The Economic Outlook

At his last news conference, in April, Mr. Draghi said that while the eurozone economy was improving, risks to growth were “still tilted to the downside.”

Since then, unemployment has continued to fall, while growth remains solid.

If Mr. Draghi drops talk of the downside risks, and there is a good chance he will, that is a sign that the central bank is a step closer to tapering.

Plans for Interest Rate

The European Central Bank has said it will not touch its benchmark interest rates until it has ended the bond buying program, and, in any case, will keep rates low for “an extended period of time.”

Still, analysts have already begun speculating about when the first rate increases might occur.

Mr. Draghi will probably try to discourage any expectations that interest rate increases are anywhere on the horizon.

But any tweak to the bank’s boilerplate language on the subject would be significant.

Prices Are Not Yet Right

Inflation, the central bank’s most important economic indicator, continues to fluctuate at levels below the official target (which is below but close to 2 percent).

Mr. Draghi has generally dismissed spikes in consumer prices as a result of transient factors, such as the price of oil.

“Underlying inflation pressures continue to remain subdued and have yet to show a convincing upward trend,” Mr. Draghi said in April.

That is another phrase analysts will be tracking closely.

If Mr. Draghi betrays any concern about inflation, it would be cause for them to recalibrate their forecasts of how soon the European Central Bank will take away the stimulus punch bowl.

New York Times

Start the Conversation

Your email address will not be published. Required fields are marked *


*