- Uncertainty is weighing on investment.
- Soft data pointing to a significant cooling in business and consumer sentiment.
- Global economic integretion is now stalled, if not reversing; last few weeks have seen an acceleration in pace and scale of change.
- Even if a full-blown trade war turns out to be short-lived, uncertainty effects will persist for some time.
- Monetary policy must adapt to the new nature of supply shocks generated by geoeconomic fragmentation.
- Given effects of size, scale and more persistent nature of fragmentation-induced shocks, and their impact on prices, monetary policy responses will need careful calibration.
- Threats of inflation de-anchoring, from both above and below, warrant forceful and persistent responses.
- Interest rates remains default policy lever in our toolbox; when constrained by lower bound, other tools such as targeted lending and balance sheet operations have their uses.
He’s suggesting a more careful approach to interest rates adjustments. I think the ECB now needs to pause for some time and see how things evolve in light of the recent news on the trade front. The market is now pricing 45 bps of easing by year-end compared to 56 bps before the US-China news.
This article was written by Giuseppe Dellamotta at www.forexlive.com.