One day after the Federal Reserve released the FOMC Meeting Minutes, the European Central Bank (ECB) did the same – it released the September “accounts.” This is the name the ECB gave to the minutes of its meetings, a “habit” acquired from the Fed in an attempt to improve communication and forward guidance.
These accounts are of particular importance for the Euro. At the September meeting, the expectations were high that the ECB would deliver a dovish message. After all, inflation was at that time at 0.4% and threatened to move even lower. To the surprise of many market participants, the ECB sounded hawkish, rather than dovish. As such, yesterday’s accounts presented an opportunity to see if the ECB meant business with its hawkishness, or it was just miscommunication from the Governing Council?
Dovish ECB Accounts Despite Hawkish Press Conference
As it turned out, the accounts are dovish, but the press conference and the way Christine Lagarde delivered the Governing’s Council message was hawkish. This comes to testify the difficulty central banks have in properly communicating to market participants their intentions and decisions.
One day after the September ECB meeting, the Chief Economist, Philip Lane, published an article on the ECB’s blog. He laid down everything the President did not say during the press conference. More exactly, the ECB corrected the market’s view and delivered the dovish message using Lane’s article.
In the cryptic messaging world of central banks, Lane mentioned “no complacency” from the ECB. This is dovish, but the ECB introductory statement did not have these words. They were published the next day in the blog.
However, yesterday’s accounts for the meeting reveal that the “no room for complacency” statement existed but was not used at the press conference or in the introductory statement.
Was it a mistake? Unlikely.
The accounts also showed that the ECB mentioned the exchange rate in various forms the most since 2018. The exchange rate was mentioned almost thirty times, signaling that the ECB focused on the exchange rate strength rather than on the “no complacency” message.
What is the difference? In the ECB’s language, no complacency means more easing – no doubt about it. Therefore, expect more QE from the ECB, albeit we do not know the size of the new package to come.
To fight 0.2% core inflation and a higher exchange rate, the ECB should go big. Or go home.