Lagarde Itroduces Changes To QE Programmes

The European Central Bank introduced changes to its QE programs on Thursday. The ECB could have delivered a more hawkish calibration, but retain flexibility and optionality for now.

During today’s press conference, Christine Lagarde conveyed that optionality and flexibility were key components of ECB’s calibration.

The calibration has both something for the hawks and the doves and must be seen as a compromise. In our view, the calibration of instruments could also have been more hawkish given the staff projections, both on core inflation and wage growth, which serves as part of the realised progress in underlying inflation.

For ECB, it seems to be somewhat of a discussion about if the supply chain shock will be temporary, or not, and ECB sees it as temporary.

Therefore, the ECB expects a large demand shock from both pent-up demand, savings, as well as via the easing of supply chains. This is quite different from how Fed and others view global macro at the moment.

The ECB macroeconomic expectations are a risk scenario but certainly not the main one. As such, equally, if ECB proves right then we would expect to see a very EUR-bullish macro narrative, steeper global yield curves and possibly also a step back in the hawkishness of other global central banks.