Expectations for further policy action at the European Central Bank’s meeting on Thursday are running high after ECB President Mario Draghi pledged to use all available tools to keep prices in check.
But investors may be in for disappointment as resistance to quantitative easing (QE) remains stiff, particularly in Germany, while there is an increasing recognition that the ECB may not be able to solve Europe’s problems alone.
Draghi told a central bank conference in Jackson Hole on Aug. 22 that financial market inflation expectations were falling significantly and the ECB would use “all available instruments needed to ensure price stability”.
In a dramatic departure from debt-cutting orthodoxy, he also said there was scope for fiscal policy – more government spending – to play a greater role in reviving growth, an apparent acknowledgement of the limits of the ECB’s powers.
German Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble were reported to have called Draghi seeking clarification and Schaeuble later said he had been “overinterpreted”.
This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.