ECB Insight: With no Mention of US Fed, de Guindos Interview Remains Short on Answers

20 September 2024

By David Barwick – FRANKFURT (Econostream) – Observers of the European Central Bank who reacted with enthusiasm at the appearance of an interview with a member of its Executive Board – on this occasion Vice President Luis de Guindos, who spoke with Portuguese weekly Expresso – may have felt a tinge of disappointment to find no reference to the most interesting recent development of relevance, namely the US Federal Reserve’s decision two days ago to launch its easing cycle with a surprisingly large 50bp cut.

The fact is that other than the Fed’s move, nothing much has changed lately, it having been only a week since ECB President Christine Lagarde explained the thinking behind the Governing Council’s second rate cut of the cycle.

Alas, the interview was conducted five days before the Fed decision, leaving de Guindos with little to do beyond further muddy the waters with respect to the burning question of whether the ECB will next move in October or December.

Truly, the reader is not left much wiser in this regard. Indeed, a feeling of slight confusion would be understandable, though here it is important to note that ‘uncertain’ is exactly how the ECB prefers to leave this question for now.

‘It’s true to say that in December, we will have more information than in October’, de Guindos said. ‘We will have more information and a new round of projections.’

A mere statement of fact or a subtle hint? ‘Both’ would be the correct answer. After all, there was no pressing need to point out the obvious, except to emphasise it.

Meaning that December, from today’s perspective, is better suited to another rate cut than October (our position even before last week’s Governing Council meeting, and still our position despite the Fed move).

‘But, you know, we have left the door totally open’, de Guindos continued. ‘We want to maintain our optionality, and that will depend on the evolution of the data.’

In other words, yes, December seems the more appropriate timing for the ECB’s third cut, but there is no guarantee that this won’t change.

From there, de Guindos - like ECB President Christine Lagarde last week, not to mention various other Governing Council members - observes that expected low September inflation will be followed by significantly less gratifying fourth quarter figures.

This is ‘relevant’, he says. To the extent it is, it is hardly an argument in favour of an October cut. On the contrary, the evolution of inflation in September, which will be the latest inflation data available at the October monetary policy meeting, can essentially be discounted.

At this point, de Guindos is thus pointing away from October, though – consistent with meeting-by-meeting data-dependence - he is clearly at pains not to be at all categorical, which is why his final words on the subject are: ‘But, and I repeat: we are keeping all of our options open.’

With regard to the October versus December question, therefore, nothing has changed, or at least, nothing had changed as of 13 September, the date of the interview.

Beyond this, de Guindos is noticeably restrained about growth prospects, stressing as ‘quite important’ the ECB’s characterisation of risks to this as on the downside and noting that the outlook depends above all on increased consumption whilst cautioning that ‘consumers may feel that other factors are undermining their confidence, such as political risks or other things that we can’t control.’

Ultimately, one is left thinking that the interview would have benefitted from the insertion of some reaction to the Fed’s decision on Wednesday. But the ECB is nothing if not a bureaucracy, where displays of flexibility have to have been duly scheduled well ahead of time.

As a last remark, we found amusing Expresso’s question to de Guindos as to whether Banco de Portugal Governor Mário Centeno would ‘have a chance of taking your place’ on the Executive Board when the former’s term ends on 31 May 2026.

‘I don’t know’, we are told de Guindos responded diplomatically. He should know, though, and the correct answer is ‘no’.

For one thing, Spain was already without representation on the ECB Executive Board between 31 May 2012, when José Manuel González-Páramo left, and 1 June 2018, when de Guindos joined. Spain is not going to willingly relinquish again so soon its claim to a spot on the Board.

For another thing, while purely arithmetically there is obviously room for smaller countries to be represented on the Executive Board (to be precise, two spots, given six in total and four major economies), Portugal already had a turn relatively recently, with Vítor Constâncio in the vice presidency for eight years ending on 31 May 2018 – de Guindos is his successor.

Taking into account as well ever louder calls for newer EU member states to get a turn on the ECB’s Executive Board, not to mention the increasing attention paid to gender, Centeno would, to put it mildly, face an uphill battle to join the Board, notwithstanding his unquestionable qualifications.