The market reaction shouldn’t come as a surprise: investors love policy easing because, all else being the same, it triggers an asset price appreciation. Moreover, hints by Jerome Powell of possible Fed rate cuts in reaction to the trade-related headwinds, may have fuelled hopes that the ECB might already start to act in such a way. The observation that it is not in a hurry isn’t a surprise either. Although manufacturing is suffering, the services and construction sector show resilience and the eurozone economy should continue to benefit from supportive fundamentals. Another reason is the observation that, despite the rhetoric about what the toolkit still offers, room to ease further is far smaller than before: when you have fewer bullets, better aim right. Yet, the most interesting part of the press conference was the comment that the discussion in the Governing Council about the readiness to act in case of adverse contingencies has become more granular with several members raising the possibility of further rate cuts, restarting the asset purchase programme (QE) or a further extension of forward guidance. The inflation front is not different from the world of military affairs: if you want peace, prepare for war, and start sufficiently early.
