The disinflation process is well on trackThis decision is an example of data dependenceEconomic activity has come in below what we anticipatedDecember will be another opportunity to put the information in our modelWhat was debated was 25 basis points, end of story (not 50 bps)Decision to cut 25 bps was unanimous I didn’t open the door to anythingProbably more downside risks to inflation than upside risksWe are still looking at a soft landing, we certainly do not see a recessionWe are concerned about growthInflation is definitely on the disinflationary trackWe were all surprised by the acceleration lower in inflation dataWe haven’t broken the neck of inflation but we’re in that process
Lagarde has mentioned soft PMI survey 4-5 times in a clear indication they’re worried about growth.
The euro is selling off during the press conference and I think it’s because the ECB is behind the curve. They seem to recognize that growth is disappointing but didn’t even consider 50 bps. Rates at 3.25% are too high for an economy that’s repeatedly stuck in stagnation and is facing fiscal austerity. Ultimately, being late to cut now will mean they cut more later and the market is sniffing that out.
This article was written by Adam Button at www.forexlive.com.
