Draghi says ECB will fall short of meeting inflation goal in 2020

Bloomberg

Mario Draghi stopped short of declaring that the European Central Bank will meet its inflation goal in 2020, signalling that the euro-area economy isn’t yet strong enough to warrant weaning off monetary stimulus.
The ECB president unveiled updated economic projections that showed continued gro-
wth over the next three years but only slowly improving
consumer-price gains.
Inflation will average 1.7 percent in 2020, below the goal of just under 2 percent. Policy makers earlier kept interest rates and their quantitative-easing settings unchanged.
The Governing Council’s discussion “reflected the increasing confidence that we have in the convergence of inflation towards a self-sustained path in the medium term,” Draghi said in a press conference, adding that
an “ample degree” of stimulus is still needed. “Domestic price pressures remain muted overall and have yet to show convincing signs of a sustained upward trend.”
The euro fluctuated after the decision and Draghi’s remarks, though it was little changed at $1.1817 at 3:24 p.m. Frankfurt time. Rather than hitting a single number, it is more important that inflation converges to the target in a self-sustained and durable manner, he said.
Improving conditions in the labor market should increase pressure on nominal wages, which are a key driver of underlying price pressures.
The ECB chief’s caution comes amid a spate of central-bank
decisions in the past 24 hours that signaled tighter global
monetary policies ahead. The Federal Reserve announced its third interest-rate increase of the year, China unexpectedly edged borrowing costs higher, and Norway’s central bank signalled that it may start raising interest rates earlier than previously indicated.
The Swiss National Bank predicted inflation will exceed its mandate in late 2020, though said it won’t rush to raise rates. The Bank of England, which increased rates last month for the first time in a decade, kept policy on hold in London.
Bolstered by ECB stimulus and a global economic recovery, the euro area has recorded 18 straight quarters of expansion since coming out of a double-dip recession, and sentiment
surveys point to accelerating momentum.
Upside growth surprises are possible, while downside risks are mostly related to global
factors, Draghi said.
The stellar performance has encouraged some policy makers to urge resolute action, with Bundesbank President Jens Weidmann and his Dutch counterpart Klaas Knot among those calling for a firm end-date for bond purchases.
The Governing Council has also raised the issue of link-
ing the whole policy stance
— rather than just asset purchases — to inflation, to make it easier to stop bond-buying even if consumer-price growth isn’t fully on target.
Draghi said neither the structure of the bond-buying program nor a change in guidance were discussed, but he acknowledged that the outlook for interest rates will gain importance in
the coming months.
The Governing Council will halve asset purchases to 30 billion euros ($35 billion) a month starting in January and continue for at least nine months until the end of September. It promised to increase or extend buying if the outlook for inflation worsens, and expects to keep interest rates unchanged until well past the end of net asset purchases. It will also reinvest the proceeds from maturing debt holdings for as long as necessary.