Mario Draghi, the head of the European Central Bank, has hinted in a speech that the ECB might slow down, stop or even reverse elements of the quantitative easing process. The insight being that as inflation picks up–a major goal of the process itself–then the policy stance if flat becomes more accommodative.
Thus it is possible to tighten policy as the inflation does pick up but still maintain a stable stance in terms of the influence of monetary policy upon the economy. The reason the euro bounced as a result is that the most notable effect of QE so far hasn’t been upon inflation at all but in lowering the value of the euro. So, stop doing so much QE and the euro rises, seems fairly reasonable if we’re honest about it.
The euro surged almost 1 percent against the dollar on Tuesday after European Central Bank President Mario Draghi opened the door to tweaks that might begin to reduce the Bank’s emergency stimulus to the economy shortly.
Speaking to a conference in Portugal, Draghi said the central bank could adjust its policy tools of sub-zero interest rates and massive bond purchases as economic prospects improve in Europe.
