skip navigation


Stay up to date on timely topics and market events. Subscribe to our Blog now.

December 12, 2019

ECB Meeting Recap—A “Wise Owl” Taking Over

By Andreas Billmeier, PhD

Stay up to date on timely topics and market events. Subscribe to our Blog now.

Notwithstanding a few wobbles, Christine Lagarde managed to navigate her first press conference as ECB President largely unscathed. On the policy front, there were no material changes in the policy decision language (other than acknowledging the restart of the asset purchase program) and continuity is the name of the game for now. In this sense, Lagarde came across as a reincarnation of her predecessor, stressing the need for a highly accommodative monetary policy stance and the fact that all policy measures are “intended to work together”, consistent with recent speeches by the ECB chief economist Phillip Lane. Indeed, even when probed repeatedly in the press conference, she did not want to pick her favorite policy measure. Interestingly, in several spots the language changed from “sustained” to “robust” when describing the required convergence of actual inflation to the aim.

On the data front, Lagarde was able to deliver a positive message: while she perceives the longer-term growth outlook as still unsatisfactory, she pointed out that European data had turned a bit less negative. She also stressed that downside risks have receded somewhat and that uncertainty should resolve further, referring especially to the UK elections and Brexit. The forecasting round led to only marginal adjustments for growth and inflation projections. Lagarde stressed that while the 2022 HICP forecast of 1.6% is still well below the target, it masks a 4Q22 projection of 1.7%—an upward trend that she welcomed but did not judge satisfactory.

In terms of communication, she was quite proactive. Before engaging in the Q&A section of the press conference, she stressed that she does not want to be compared to Mario Draghi (yet some comparison is unavoidable). She also explicitly set out what she wanted to say about the forthcoming policy review, which she dubbed “long overdue.” She expects it to take much of 2020, but no longer than that. In an important break with the past, Lagarde clearly intended to demonstrate her inclusiveness on topics such as climate change, but also with respect to input from the Governing Council, including for the remit of the policy review. To us, this was potentially the biggest—albeit not completely unexpected—change from her predecessor. National central bank governors will have liked what they heard.

Neither Dove Nor Hawk

There is a certain symmetry to G2 central banking these days, as evidenced in yesterday’s FOMC statement and the write-up of my colleague John Bellows. Big picture, there are hurdles to changing policy rates in both directions, but the hurdle to cut is much lower than the hurdle to hike while inflation is (too) low. Similar to the Federal Reserve, the ECB is also tackling an (overdue) review of its monetary policy strategy, lagging the Fed by roughly a year. If the European economy has really turned the corner, Lagarde will have enough time to gather the results of the review and implement (marginal) changes to the policy strategy and possibly introduce more explicit symmetry around the target. If the data improvement is a head-fake, however, she will quickly be confronted with the task of jumping over that (low) hurdle and ease the policy stance. To quote the new ECB president: “I’m neither a dove nor a hawk. My ambition is to be this owl, that’s often associated with a little bit of wisdom.”

© Western Asset Management Company, LLC 2021. This publication is the property of Western Asset and is intended for the sole use of its clients, consultants, and other intended recipients. It should not be forwarded to any other person. Contents herein should be treated as confidential and proprietary information. This material may not be reproduced or used in any form or medium without express written permission.
Past results are not indicative of future investment results. This publication is for informational purposes only and reflects the current opinions of Western Asset. Information contained herein is believed to be accurate, but cannot be guaranteed. Opinions represented are not intended as an offer or solicitation with respect to the purchase or sale of any security and are subject to change without notice. Statements in this material should not be considered investment advice. Employees and/or clients of Western Asset may have a position in the securities mentioned. This publication has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information, you should consider its appropriateness having regard to your objectives, financial situation or needs. It is your responsibility to be aware of and observe the applicable laws and regulations of your country of residence.
Western Asset Management Company Distribuidora de Títulos e Valores Mobiliários Limitada is authorised and regulated by Comissão de Valores Mobiliários and Banco Central do Brasil. Western Asset Management Company Pty Ltd ABN 41 117 767 923 is the holder of the Australian Financial Services Licence 303160. Western Asset Management Company Pte. Ltd. Co. Reg. No. 200007692R is a holder of a Capital Markets Services Licence for fund management and regulated by the Monetary Authority of Singapore. Western Asset Management Company Ltd is a registered Financial Instruments Business Operator and regulated by the Financial Services Agency of Japan. Western Asset Management Company Limited is authorised and regulated by the Financial Conduct Authority (“FCA”) (FRN 145930). This communication is intended for distribution to Professional Clients only if deemed to be a financial promotion in the UK as defined by the FCA. This communication may also be intended for certain EEA countries where Western Asset has been granted permission to do so. For the current list of the approved EEA countries please contact Western Asset at +44 (0)20 7422 3000.