ECB governors continued to stress that they may take additional actions if needed, a theme introduced by president Draghi at the September meeting. Governor Mersch said the introduction of for ward guidance will help the Eurozone prevent market interest rates from being influenced by “foreign shocks”. The president himself emphasized for the first time the use of a new LTRO: “We are ready to use any instrument, including another LTRO if needed, to maintain the short term money markets at the level that is warranted by our assessment of inflation in the medium term.”
In the US, three Fed governors shed their light on monetary policy: NY Fed Dudley, Atlanta Fed Lockhart and Dallas Fed Fisher. The former two sounded dovish, the latter hawkish. Dudley that the US economy didn’t gather forward momentum and a 2% growth rate (even if sustained) might not be enough to warrant a further improvement on the labour market. He was downbeat about the outlook, saying that the drag from fiscal policy may extend into next year, and income growth was not fast enough to support strong rises in consumption.
Therefore he believes that the Fed’s monetary policy needs to remain very accommodative. Dudley has two parameters to decide on tapering QE: evidence of labour market improvement and evidence of enough economic momentum.
Currently, he thinks the Fed made progress on these metrics, but didn’t achieve success. Atlanta Fed Lockhart, non-voter, pointed to the recent slo wing in job creation why he remained on the FOMC side in favour of keeping the $85B/month bond buying programme in place for now. Dallas Fed Fisher, renown hawk, warned that the Fed’s decision to stay put undermined the FOMC’s credibility. As Bullard on Friday, the said that it was a very close call.