An ambiguity that organisations such as the BIS or the IMF now routinely show in their conclusions when assessing the risks arising from the excesses of expansionary monetary policy—while warning of risks, other risks, in the event of rapid monetary normalisation. The Fed has been considering raising interest rates for more than eight months now… is it moving too quickly?
I therefore hope that the ECB leaves us an ambiguous message after tomorrow’s meeting. In short:
Naturally, the possibility of further expansionary monetary measures. Nothing surprising, considering that the market is already pricing this in before year-end. The debate ranges from extending the asset-purchase period, to providing greater credit facilities to banks, and even deepening negative interest rates on financial institutions’ excess reserves. However, in my view, it is this last measure that is likely to face the greatest reservations—not only within the ECB, but also among the other major central banks worldwide. Remember that both the Fed and the BoE have explicitly rejected this possibility. Meanwhile, the BoJ has launched a study to assess its pros and cons.
