Real interest rates are deeply negative in much of the Eurozone due to the combination of interest rate repression by the ECB’s bond buying program plus above-target inflation.
Mario Draghi is one of the better communicators in modern central banking. Everything he conveyed during the ECB’s 19th of January press conference was intentional. Each time he was presented with questions about whether the ECB should consider winding down its bond buying program faster in light of strengthening economic and inflation data he repeatedly stated, “it wasn’t discussed.” The last thing the native Italian central bank chief wants is a market eager to front run an accelerated QE taper, causing an unstable spike in Eurozone bond yields and in the value of the euro. Any tiny crumb of hope tossed to the hawks risks massive market repercussions similar to the Bernanke-inspired taper tantrum of 2013. Maintaining ultra loose monetary policy risks a rubber band snap back toward tightening […]