Authored by Bloomberg's Richard Breslow,
Fischer, Not Draghi, Will Be The Enduring Story
ECB President Mario Draghi garnered the lion’s share of yesterday’s headlines with his uber dovish speech at the Sintra banking forum. And rightly so. If anyone doubted that monetary policy expectations have lost their ability to move markets, that notion was categorically put to rest. Which, undoubtedly, was part of the point.
All of the bang, and it didn’t cost a cent.
From that perspective, he did a favor to other central banks that have been trying to convince their investors they still have additional and effective instruments in their toolkit. But it is hard not to wonder if he had intended to reach another equally important audience: His own Governing Council.
He, like all of his peers, like to say, somewhat disingenuously, they don’t like to pre-commit. Which is true unless it suits their forward guidance objectives. Well, he essentially did commit, on behalf of the candidates running to succeed him, that the public argument will be between whether to act boldly as necessary, or bide their time. Dare I say, be patient.
It will be difficult for a hopeful, let alone other Council members, to make much headway asserting that the Bank has done enough and should push on with normalization. The race won’t come down to a straight dove versus hawk debate. Something to remember as we search for headlines to trade off of.
Yet, as resolute as he sounded, it would most likely be a mistake to think he is ready to pull the trigger anytime soon. Especially because it appears that he took many of his own colleagues by surprise with a message that went beyond the discussions at their recent meeting.
Ex-ECB Chief Economist Peter Praet’s comment on Bloomberg TV that “Markets don’t say act now, they want to be reassured” is probably the most accurate interpretation of how the GC sees things. They don’t know how the trade discussions will end up any better than anyone else. It’s more than ironic that from the outside looking in, the much cited “global headwinds” meant to help explain the ECB’s dovish tilt are coming from the U.S., not the other way around.
Some of Draghi’s press conference comments, however, probably should have been taken at greater face value than they were at the time. And it is interesting to see that periphery yields and equities have maintained most of yesterday’s moves.
As we await the FOMC’s decision, it’s well worth the time to reread the comments of the last few days from Fed ex-Vice Chairman Stanley Fischer. He thoroughly rejected the notion that central bank bashing is just noise. If you want to handicap what to expect, you must consider this line:
“Fischer also said there was a good chance the Fed wouldn’t have raised borrowing costs in December if Trump had been less vocal.”
That’s an astounding notion. Especially coming from a Fed defender.
It actually opens up the possibility that if they tilt, in either direction, it could be portrayed as politically motivated. And opens up a whole big can of worms about policy mistakes. A lot is expected of this meeting. Whether they end up doing something or not, the best choice really might be to stick with “patient.”