Next Up for the ECB: Preparing Markets for QE Phase-Out

Next Up for the ECB: Preparing Markets for QE Phase-Out


Don’t expect any monetary-policy decisions to be made at the European Central Bank’s meeting on 8 March, says Franck Dixmier. But the bank is likely to clarify its forward guidance to announce that it will no longer link the continuation of QE with inflation, which has remained stubbornly low.

Inflation in the euro zone may be low, but robust economic growth suggests strong growth prospects for the region in the coming months. This makes the European Central Bank’s cautious monetary-policy stance seem increasingly less justified.

We believe that a high degree of economic confidence for the euro zone will lead the ECB to hike rates next year, even though inflation will likely remain far from the bank’s price-stability objective. Investors seem to agree: the markets are finally anticipating an initial rate rise to occur in the middle of the first half of 2019.

Before that, however, we expect the central bank to turn its attention to its asset-purchase program. Admittedly, monetary conditions have tightened over the last six months, under the impact of a stronger euro and higher long-term interest rates. But this doesn’t support the continuation of quantitative easing (QE) in our view, particularly with economic growth expected to remain above potential in 2018.

Therefore, the immediate challenge for the ECB is to adjust its communication to best prepare investors to face the upcoming end of QE. As a result, we expect the ECB to shift its forward guidance at its March meeting, making it clear that the bank will no longer tie the continuation of QE to inflation. After that, we anticipate that a QE phase-out schedule will be provided before the summer.

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Brexit Blues: Survey Shows Rising UK Consumer Concerns



A new Grassroots Research report shows that 18 months after the Brexit vote, UK residents are growing more concerned about employment, less confident in their household finances and more worried about Brexit’s long-term effects on the economy.

Key takeaways

  • Almost half of the respondents to our new Grassroots® survey said they think Brexit will cause the UK economy to deteriorate over the long term
  • Brexit is hurting some UK savers: 23% of our December survey respondents they plan to save less than before, up from 14% in July 2016
  • Because of Brexit, more than 1/3 of our Grassroots® survey respondents said they expected to reduce their dining, vacation and auto purchases
  • Auto sales are an important driver of the UK economy, but they’ve cooled significantly since their July 2016 post-Brexit high; our research suggests UK autos could remain the weak spot within Europe