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December 02, 2005
The ECB Plays Its Hand Weakly?
Perhaps the most significant among the many comments was not the observation from Dominique de Vllepin’s politically correct “My belief is that the ECB wouldn’t do anything that would compromise economic growth in the EU.” but rather Christian Noyer - Governor of the Bank of France - saying “we don’t have anything else in our pocket for now……it’s not forecast that it’s the beginning of the cycle.”
I believe Edward thinks it is still too early to declare US monetary policy the unqualified success I implied...
Exactly, what has happened since the 1st November, well, at the risk of being a pain, I would say that the threat of a yield curve inversion in the United States has increased significantly - with the disconnect between US and eurozone growth as the driver - that is what has happened.
... and the ECB decision was misguided as a matter of both policy and strategy:
My own view is that this has been an extremely foolish move on the part of the Bank, and... they are playing with fire here (as is incidentally and on the other side of the planet the Bank of Japan). If they have read the tealeaves badly (and I think they have) and if the German data fail to improve and the Italian data turn downhill again (which I think might well happen) then this may be the last time the ECB will dare to make a decision which isn’t approved of by the finance ministers first.
So was this a balanced risk? Was it wise - or even, god forbid, prudent - to try and call the shots when only a quarter point is in play. I think not. If I was going to make a risky call, one which could threaten my long term independence methinks I would want to do it for something a bit more substantial.
It's an excellent post. Read the whole thing.
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The ECB finally raise rates - but should they have?
After leaving interest rates unchanged for more than two years, the European Central Bank yesterday raised official interest rates by 25 basis points to 2.25%. The decision has sparked some interesting reactions. European share prices have rallied, the... [Read More]
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