Today the European Central Bank released an account of its January meeting during which the decision to start quantitative easing was made. The document, more than 9,000 words, contains some interesting insights into the thoughts behind the decision—particularly this passage:
“… [I]t was highlighted that recent supportive financial market developments largely reflected market expectations about the monetary policy decisions to be taken at the current meeting. Accordingly, a reversal of recent financial market developments could be expected if no further monetary policy measures were announced.”
To understand what happened here, it is worth exploring where those market expectations came from. As far back as April 2014, ECB President Mario Draghi was preparing the ground for a sovereign bond purchase program when he said the ECB might start broad-based asset purchases if the inflation outlook was to worsen.