Central banks sounding relatively aggressive – ABN AMRO

Han de Jong, chief economist at ABN AMRO, points out that the ECB president Draghi has signalled that the ECB will provide more stimulus.

Key Quotes

“We had assumed that the ECB will restart purchasing assets. But we had also presumed they would leave the already negative deposit rate unchanged. Mr Draghi said explicitly that cutting rates further is a policy option that is on the table.”

“Mr Draghi’s opposite number at the US Federal Reserve, Jay Powell, spoke at the press conference following the Fed’s policy meeting last Wednesday. He also signalled easing and we are confident that the Fed will cut rates at their next meeting on the last two days of July.”

“What surprised us a little, or even more than a little, is that Powell appeared to keep open the option of cutting by 50 bp. The market has been pricing in some rate cuts for some time. Most people worry that the market has gotten a little ahead of itself. If the Fed cuts rates, but by less or fewer times than the market is pricing in, then there could be a negative market reaction. I would have thought that there was no need to be egging the market on in terms of their rate-cut expectations. Yet, that is effectively what Powell did. Markets responded positively. He’d better deliver.”