Lagarde Imitates Thatcher, and Yellen Scares by Default

10 Eyl 2021

The main event of yesterday for financial markets is the announcement of the results of the ECB meeting. Let us recall that after a sharp rise in inflation in the Eurozone (to the highest values ​​in the last 10 years), many were puzzled by the question, is it time for the ECB to tighten monetary policy?

The results of the ECB meeting turned out to be rather ambiguous. On the one hand, the ECB's key rate remained unchanged at minus 0.5%, and purchases under the Asset Purchase Program (APP) were unchanged at 20 billion euros per month. That is, sort of like the status quo. But there is one "but".

The Pandemic Shopping Program (PEPP) has been phased out until it ends in March 2022. As part of this program, over the past two quarters, the ECB has been buying about 80 billion euros of debt every month. And although the central bank did not provide numerical guidelines for the rate of curtailment, it is still a clear signal in favor of the end of the era of monetary showers.

But on the other hand, the head of the ECB Lagarde, imitating Margaret Thatcher (who at one time, in response to calls to change the course of economic policy, said: “the lady's not for turning”) said literally the following: “The lady isn't tapering”. That is, it made it clear that we are not talking about narrowing quantitative easing as such. Recall that it is the word "tapering" (literally "narrowing") that has recently been most often found in the context of central banks, especially the Fed.

So everyone can interpret the results of the ECB meeting based on their own vision. On our own note, there is a natural competition on the part of the Central Banks "how to tighten monetary policy, but to do it so that no one understands that this is tightening." In this light, the ECB is definitely one of the nominees for the grand prize.

And if Lagarde tried with all her might to make a good face in a bad game, then US Treasury Secretary Jannette Yellen did not even try to choose words when she turned to Congress about the need to raise the public debt ceiling. And she directly stated that the delay in making a decision at the legislative level would call into question the ability of the federal government to fulfill its obligations and, probably, cause irreparable damage to the US economy. So a default in the context of the United States may well enter the keywords of financial news in the foreseeable future. Recall that 10 years ago there was a similar situation, and then the bargaining between the legislators ended with a downgrade of the US credit rating.