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Groundhog Day Continues For The European Central Bank

Published 05/13/2014, 04:22 AM
Updated 07/09/2023, 06:31 AM

For the last months, the press conferences of Mario Draghi at the European Central Bank (ECB) have felt very repetitive. The argument has always been the same: inflation is below target and this might be a risk. But there is uncertainty as well as other risks so let's wait for more data. But when more data arrives, confirming that inflation is below the target, there is no action being triggered and we simply start a new period of waiting for yet more data. Here is my quick search for this pattern in the speeches and Q&A from the last eight months worth of press conferences.

October 2013:

... and are ready to consider all available instruments.

November 2013:

... but there are a whole range of instruments that we can activate, if needed.

December 2013:

... and are ready to consider all available instruments.
 
January 2014:
... and to take further decisive action if required.
 
February 2014:
... and to take further decisive action if required.
 
March 2014:
... and to take further decisive action if required.
 
April 2014:
... and act swiftly if required.

May 2014:

... and act swiftly, if required.

So it was back in October when the ECB moved from the (forward guidance) statement of interest rates remaining low for a long period of time to explicitly mentioning the possibility of further actions where all available instruments would be considered. Since then, only the words have changed: notice that in the last two months they are willing to act swiftly while before they were willing to take further decisive actions (in both cases only if required).

It is hard to know how much the wait-and-see attitude of the ECB is a sign of a compromise to acknowledge the threat of low inflation even if there is no consensus on how to deal with it or a truly cautious approach to dealing with challenging economic times. In either case, the actions and even language of the ECB stand in sharp contrast with those of the U.S. Fed.

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