The ECB Should Take a Page From the Fed's Playbook
Separate attempts to taper quantitative easing from eventually hiking official interest rates is a brilliant confidence trick.
Although European Central Bank President Christine Lagarde did not present at this year’s virtual Jackson Hole symposium, the Federal Reserve’s annual central bank policy forum, she was surely paying close attention.
One message in particular from Fed Chair Jerome Powell’s address could be very useful for her to replicate — that of using forward guidance to separate any early attempt to taper quantitative easing from an eventual hike in official interest rates. Keeping the unconventional bond purchases method distinct from the conventional tool of central bank policy would give the ECB what it desperately needs: time.