ECB Watch: Life in the Slow Lane

Summary

• ‍‍‍Central banks are famously compared to oil tankers: slow and unwieldy things. The ECB is no different. However, the ECB under President Lagarde has become even more lethargic. At the October Governing Council meeting, the ECB gave itself plenty of excuses for a dovish U-Turn and ditch the restrictive policy stance. But President Lagarde missed the bus again. The ECB itself is now saying it is behind the curve. That is a very bad message;‍
• ‍President Lagarde’s consensus-building and leading from behind leadership style is at fault. Her predecessors would have overruled the hawkish opposition and turn the ship around;‍
• I change my forecasts for ECB rates to an even more front-loaded easing cycle: 25bps cuts at the next five meetings. The ECB is one negative headline away from having to rush through a 50bps cut, likely in December. Markets forcing the ECB’s hand and pushing for a 50bps cut next in December is totally logical.