Draghi’s drama-free Jackson Hole reaffirms slow QE exit

Bloomberg

Mario Draghi’s message in Jackson Hole recently may not have been dramatic as three years ago but was clear nonetheless: the European Central Bank will go extremely slow about removing its monetary stimulus.
While the ECB president startled investors in 2014 by laying the groundwork for quantitative easing, his published remarks at the Federal Reserve symposium in Wyoming included nothing on policy makers’ deliberations scheduled for September 7 or on their concerns over the euro’s appreciation. In response to his silence, the single currency jumped to the highest level in more than two and a half years against the dollar.
But in the subsequent discussion Draghi took the opportunity to reiterate the Governing Council’s position at its previous policy meeting in July.
A self-sustained convergence of inflation towards the ECB’s goal is still nowhere in sight, labour-market factors that are weighing on wage growth and subduing inflation won’t disappear anytime soon—meaning “a significant degree of monetary accommodation” is still warranted.
“His responses during the Q&A were more closely related to the outlook for the euro area, but stuck to the familiar narrative of weak inflation necessitating ongoing monetary accommodation,” economists Jamie Murray and Niraj Shah wrote in a Bloomberg Intelligence analysis. “As the ECB’s guidance indicates, asset purchases will continue until there is a pickup in underlying inflation— there’s little evidence of that now.”

Bond-Buying Talks
The euro held onto its gains after the comments from the Q&A. The single currency climbed as high as $1.1941, the strongest since January 2015, and was up 1.1 percent at $1.1924 at the close of trading.
Back in 2014 at the Kansas Fed mountain resort, Draghi made a last-minute addition to his
speech to say euro-area inflation expectations were falling “at all horizons,” meeting a precondition that he had previously said would warrant QE.
More than $2.4 trillion of debt purchases later, policy makers are poised to discuss when and how the programme will continue next year, and whether buying can be wound down.
Given the complexity of ECB stimulus, any decision may not come until the ECB’s October session. Rather than front-running the debate, Draghi chose to focus his speech on a defense of free trade and post-crisis financial regulation—the latter comments echoing the remarks of Fed Chair Janet Yellen who spoke a few hours earlier.
In the face of plans by President Trump’s administration to dismantle rules accused of stifling US growth, she urged that any rollback be “modest.”

Euro surges to highest since
Jan 2015 after Draghi speech
Bloomberg

The euro rallied to its highest since January 2015 as European Central Bank President Mario Draghi took a pass on talking down the common currency in remarks at the Jackson Hole economic symposium, clearing the way for bulls to keep buying.
The Bloomberg Dollar Spot index dropped to its lowest since January 2015 after Draghi’s remarks, before mildly paring losses. The greenback was lower versus all of its G-10 peers and Treasury yields were generally down on the day, after Federal Reserve Chair Janet Yellen also avoided discussion of monetary policy in an earlier speech. The Draghi speech and Yellen remarks would have disappointed any traders looking for the ECB chief to push back on gains by the euro or for the Fed chair to underscore the potential for another rate hike this year.
Draghi focused his published remarks on the risks of protectionism and said “openness to trade is under threat, and this means that policies aimed at answering this backlash are a vital part of the policy mix for dynamic growth.” He said the ECB has to “remain on guard” as it has yet to see sustained convergence of inflation to its goal, after
which the euro retreated slightly Yellen earlier called for modest regulatory reform to maintain financial stability.