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Each week, the Economic Research Department of BNP Paribas reports on economic news.
- Last week the ECB shifted its objectives
- This week the Fed changed its monetary policy horizon
- Policy coordination in all but name
The developed world’s central banks are in “easing” mode, either announcing new monetary easing measures (the ECB last week, the Norges Bank this week) or through communication that plays on expectations (the Fed this week). Virtually all point out the downside risks from the global economy. Yet what seems to be worrying central bankers the most is the often abrupt and erratic financial market moves. Of course, market euphoria is not an objective.
Yet this turmoil may not only reflect deteriorating prospects, it could also trigger them. In a more stable environment, statements are read serenely, and it seems less probable that financial markets will overreact. In recent weeks, all the central banks seemed to be acting primarily to stabilise the markets. The first results have been positive, notably in terms of the euro/dollar exchange rate. Although Mario Draghi and Janet Yellen did not explicitly say as much, their actions speak for themselves: the exchange rate is not a goal in itself, but it can become an obstacle that they clearly intend to remove. With both spelling out what they intend to do with their key rates, the euro stabilised against the dollar. If this period of calm continues, inflation data will be analysed serenely in Frankfurt and Washington, notably inflation expectations, which should naturally pick up in keeping with oil prices.
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