ECB Insight: Lagarde Suggests Council May Play It Safe, But Not Too Safe
3 December 2021
By David Barwick – FRANKFURT (Econostream) – European Central Bank President Christine Lagarde on Friday indicated that the Governing Council could play it safe at its upcoming policy meeting by avoiding unnecessarily bold decisions, while pressing it to avoid playing it too safe.
Interviewed as part of a Reuters event, Lagarde was asked explicitly about the possibility that, faced with still very high uncertainty, the Governing Council would not seek to be too ambitious at the meeting in just under two weeks.
Lagarde said she believed that ‘[w]e need to give some clarity to markets, to the people of Europe, to what we project in terms of numbers, both on the growth account, on the inflation account, and then we need to determine our policy then.’
‘So, I’m not giving you any signal today because it is the prerogative of the Governing Council on December 16 to make a decision, but I think we need to give clarity, because otherwise we just add uncertainty to uncertainty’, she added.
On the one hand, Lagarde, the one who has apparently been driving the idea that the December meeting was a date with destiny for asset purchases, stuck to her guns. By stressing the need for clarity so as not to make things worse and just ‘add uncertainty to uncertainty’, she put some pressure on those who would like to leave as much as possible for another day.
On the other hand, in a bow to the reality that there remain different schools of thought and hers isn’t necessarily dominant, she declined to prejudge the outcome on December 16.
Lagarde being Lagarde, she not merely offered but got behind a compromise by acknowledging that ‘there are ways to give clarity without making long-term commitment’ and saying she ‘would err on the side of not making very long-term commitment, because there is too much uncertainty. But equally, we need to very clearly indicate that we stand ready, in both directions.’
Lagarde’s words suggest that it remains an open question how many loose ends the Council will leave. With two weeks to go, it is reasonable to assume that there will be developments in the interim – related for example to Omicron and the staff forecasts – that would have a bearing on the Council’s ability to justify its decisions.
Barring unexpectedly conclusive information over the next 12 days, the ECB, it seems likely, will be forced to fly by sight a bit longer, a phrase used by Council member Robert Holzmann a month ago when he emphasised the need to obtain additional information.
But the idea of flying by sight was surely on Executive Board member Isabel Schnabel’s mind as well just a week ago when she said of the medium-term inflation outlook: ‘I don't think we can truly tell, on the basis of today's data, what is actually going to happen. In our decision-making, we have to take this increased uncertainty into account.’
Though she didn’t say so, the preferred way at this point of taking high uncertainty into account when making decisions may be simply limiting the scope of those decisions.