ECB unveils new plan to prop up the slowing euro zone economy, yet again
European Central Bank cuts deposit rate and launches new bond-buying program
Bad news is good news?
It’s a case of bad news is good news again for the markets as the president of the European Central Bank, Mario Draghi introduced more measures to combat the faltering euro zone economy on Thursday.
But despite the European Central Bank’s best efforts, some critics are questioning the effectiveness of further easing as Draghi becomes more vocal about weaker than expected inflation. I too question the wisdom of yet another round of ‘easing’.
Has QE actually worked?
Just how effective has it been thus far? After years of the ECB (and others) pumping money into their respective economies and constantly fiddling with interest rates – has it worked? I don’t think so, but here we are again with yet another round of QE and interest rate cuts like it or not!
Will it work this time? You have to ask yourself that question – because after all these years – it doesn’t appear to have worked. I, for one, have lost sight of what a ‘normal’ economy should look like anymore.
Cheap money
Even with all this cheap money, the euro zone’s economy hasn’t really fixed since the financial crisis. That has now been the best part of 10 years – and all we really have to show for all the effort is a VERY large bucket of world debt. This will come back to haunt us – and probably sooner than later.
Markets like certainty, and despite the underlying reason for introducing these new QE measures – at least investors will celebrate as markets react positively, even if only temporarily.
Main points
- European Central Bank cuts deposit rate and launches new bond-buying program
- The main deposit rate has been cut by 10 basis points to -0.5%.
The ECB now expects interest rates to remain at their present or lower levels until it has seen inflation outlook ‘robustly converge to a level sufficiently close to but below 2% within its projection horizon, and such convergence has been persistent.’
The Federal Reserve
It’s the turn of the Federal Reserve next on 17th September 2019 – will they also join the QE party and throw more ‘easy’ money at the U.S. economy and reduce interest rates?
Are we really facing a global recession?
Markets react instantly to the ECB’s latest measures and begin to climb again after climbing on the news released Wednesday that China is to exclude 16 products from tariff measures and Trump reciprocated with a delay on his latest tariffs as a goodwill gesture.
The Dow closes in on its all time high as the markets continue to digest this positive U.S. – China tariff development. Talks are set to resume in Washington mid October.
Is a breakthrough likely this time?