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Central Banks Pulling Back Stimulus; Euro “Taper Tantrum” ?

ECB Chair Mario Draghi remarked today that “deflationary forces” are being replaced by “reflationary forces.” Coming from a longtime “dove” and major advocate of quantitative easing, bond markets reacted with a sell off. This brought back memories of ex Fed Chair Ben Bernanke’s 2013 remarks regarding slowing down on bond purchases and accompanying market volatility. Draghi and the ECB indicated that the comments were misinterpreted as imminent policy change when he actually was trying to prepare markets for a possible slowdown in QE this fall, depending on the data. The Fed, Bank of England and other central banks are noting that assets are overpriced and worldwide debt is hitting a peak, implying that its time to tighten policy. As always, much of the decision processes will be data dependent, employment, CPI reports, etc will be closely watched. The great post-recession stimulus experiment “results” may come soon: will economies grow on their own and stimulate inflation, steepening the yield curve? Or are the rate increases too soon and choking off the recovery? Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners.