The ECB’s press conference, which began as US non farm payrolls dropped another 467K, turned out to be significantly more interesting than expected in at least one respect: just as economic activity begins to stabilize and financial market tensions to abate, the ECB seems to become increasingly concerned about the risk of a credit crunch. Together with its cautious view of the recovery prospects, this supports my view that interest rates will remain on hold well into next year. Mr. Trichet confirmed that the current stance on both interest rates and “enhanced credit support” is appropriate, but it is clear that the bank stands ready to do more on either front if needed. The ECB talks the talk of the Bundesbank, but it walks the walk of the Fed and Bank of England. Another reason why the ECB is not in any hurry to deploy an exit strategy is that it is confident that it will be able to exit very quickly once it decides to. Trichet confirmed today that all policy actions have been designed especially so that they could be unwound quickly—including, as I have noted in the past, the strategy to push market rates to zero while holding the refi at 1.0% and that of relying mostly on refinancing operations rather than on asset purchases. The ECB is rightly satisfied with the success of the 12-month refinancing operation, but with banks happy to pay a hefty 75bp charge to redeposit much of it, there is clearly no certainty that the liquidity will be promptly passed on to the real economy. Individual Governing Council members have voiced different opinions on how the ECB can push banks to lend, or by-pass them if they do not. Mr. Trichet today invoked “porte-parole privilege” to avoiding commenting on the state of the internal debate, and instead deployed a very polished and articulated moral suasion on banks, something that is becoming a favoured tool in the central bank’s arsenal. The ECB’s prudent attitude will keep short-term rates well anchored, with room for a further moderate decline in short-term euribor rates, whereas the long end will remain exposed to risks coming from (premature) inflation fears and bond supply concerns. The great bear flattening trade will have to wait for quite a while.