(Bloomberg) — European Central Bank policy makers expressed uncertainty at their latest policy meeting about the economic outlook and the extent to which they’ll have to deploy monetary stimulus.
The account of their July session showed officials were reluctant to draw conclusions from early signs of economic recovery after pandemic lockdowns were eased. Chief economist Philip Lane told the gathering that the breadth and scale of the recovery remained uneven and partial.
“At its September meeting the Governing Council would be in a better position to reassess the monetary policy stance and its policy tools,” the account of the meeting showed. “This would provide more clarity regarding the medium-term inflation outlook” and prospects for economic activity.
A sharp initial rebound had some officials speculating in the run-up to the gathering that the ECB might not need to spend the full 1.35 trillion euros ($1.6 trillion) earmarked for purchases under its pandemic program. That debate was reflected in the account, with some policy makers arguing that “the net purchase envelope should be considered a ceiling rather than a target.”
Other officials countered that the “current presumption” was that the envelope of the program “would have to be used in full.”
Since then, prospects for the economy have darkened, with some indicators suggesting activity has plateaued. Lane warned earlier this month that uncertainty about the coronavirus will weigh on consumers and businesses for some time.
Infections are rising again across Europe as peak vacation season is under way. That’s forced some governments to reinstate travel warnings and tighten restrictions on mask-wearing and social contact.
At the same time, unemployment is beginning to creep up — despite generous furlough schemes in many countries. The numbers are likely to rise further in the coming months as governments start to phase out support programs.
That’s why some cautioned during the meeting against reading too much into initially strong data. A “technical” rebound was to be expected, they said, but that “didn’t answer the question of how steady the recovery would be in the period ahead.”
Forward-looking indicators, such as new orders have remained well below their average levels, according to some of the participants.
What Bloomberg’s Economists Say
“While the Governing Council seems unlikely to unveil new monetary stimulus next month, the occasion will probably be used to shape expectations for the next change in policy. That’s probably set for December, if at all.”
–David Powell. Read the ECB REACT
In the U.S., central bankers backed off in July from an earlier readiness to set a clearer bar for raising interest rates. Minutes of the Federal Reserve’s last meeting published Wednesday showed officials are committed to keeping policy ultra-loose so long as the coronavirus crisis is significantly holding the economy back.
As ECB officials bid their time to decide if more stimulus is needed, most economists predicted ahead of the July meeting that the central bank would increase pandemic purchases this year.
“While it was underlined that the Governing Council should avoid creating new expectations of further monetary-policy action, it should also emphasize that it had the tools and policy space to take further action if needed,” according to the account.
(Updates with comment from Bloomberg economist.)
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