Lagarde Looking Dovish Going Forward

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Lagarde
  • ECB press conference
  • Lagarde sounds dovish yet again
  • Inflation not meeting target

While it should not be much of a surprise that the European Central Bank did little in the way of an interest-rate change during the meeting on Thursday, where it did come into focus is the statement given by Christine Lagarde and press conference afterward. She had a lot to say, and it shows just how dovish the ECB could be.

Lagarde dovish at press conference

The press conference and statement around the lack of action tells of just how dovish Christine Lagarde truly will be. There have been several statements to parse within the conference, and most of them suggest that loose monetary policy is going to be the way forward for the ECB in the foreseeable future.

This typically means some type of loosening coming down the road.

For example, Lagarde suggested that fourth-quarter inflation in 2022 is seen at 1.7%, well below the 2% preferred inflation level. This shows that the ECB should continue to be very loose. She also stated that 2022 inflation directionality is good but not quite up to the objective, as shown by that figure. Lagarde also stressed the need for governments within the EU that have fiscal space, to act in order to implement structural reforms. This typically means some type of loosening coming down the road.

The statement “incoming data points to continued muted inflation” suggests that growth is uneven and monetary policy isn’t anywhere near ready to be tightened. The statements were made during the ECB Governing Council Press Conference, which is closely followed by the media. The slowing down in the European Union will only give Christine Lagarde more room to move when it comes to loosening monetary policy, something that is very likely due to her proclivity anyway. She is known as being ultra dovish, so this should only give her more ammunition to persuade the rest of the members to vote for more quantitative easing.

Going forward

Going forward, it’s very likely that the ECB will continue to loosen monetary policy, buying bonds, and perhaps even getting involved in the stock markets as we have seen in other places like China and Japan. This will continue to weigh upon the Euro, although it will obviously have the occasional bounce higher due to less than impressive US numbers.

Ultimately, the Euro shrinking in value should help the export markets, and that will certainly be the goal of the ECB going forward, as central banks have one major tool in their toolbox: crushing their own currency to make their goods cheap for the rest of the world to start buying.

Unfortunately for the ECB, the rest of the world is pretty much in a “race to the bottom”, so this means that the Euro will continue to be choppy and negative overall, while stock markets in the European Union may be getting a bit of a boost from the idea of cheaper exports and perhaps even more importantly, cheap money. It’s going to continue to be very lumpy in the European Union, and as Great Britain leaves the EU, that also causes a bit of uncertainty.

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