ECB Pushed for Continued Stimulus While Fretting Over Trade

(Bloomberg) -- European Central Bank officials raised concern about U.S. trade protectionism last month, and rejected a push to declare that the conditions are almost in place to end their bond-buying program.

The account of the March 7-8 Governing Council meeting showed “the view being put forward” that policy makers were close to meeting the objective of putting inflation on a sustained path toward the medium-term goal of just under 2 percent. Officials decided there wasn’t enough evidence to make the call, with some arguing the slack in the economy may be bigger than thought.

At the same time, the Governing Council expressed “widespread concern” that “the risk of trade conflicts, which could be expected to have an adverse impact on activity for all countries involved, had increased.” While the eventual impact on the euro-area economy would depend on the scale of imposed tariffs, they were also concerned about the impact on confidence.

The meeting was notable for the unexpected decision to remove the so-called easing bias -- the ECB’s pledge to ramp up bond-buying if the economic outlook deteriorates.

ECB Pushed for Continued Stimulus While Fretting Over Trade

Since then, data have worsened and the trade scrap between the U.S. and China, the world’s two biggest economies, has escalated.

The latest blow came just hours earlier, with a report that industrial production unexpectedly shrank for a third month. While policy makers say they’re not yet concerned about the economy and that the immediate impact of any tariffs will be small, President Mario Draghi stressed this week that he’s especially concerned over any hit to confidence. That could lead to a self-reinforcing downward spiral as companies and households put off spending and investment.

“The minutes were done prior to a lot of the soft data,” Piet PH Christiansen, an economist at Danske Bank A/S in Copenhagen, said after the publication in the account. “This doesn’t change our view that the ECB will be very slow going forward, but increases the risk that the ECB could come later than currently envisaged with the next change.”

Trade threats are also high on the agenda for the Federal Reserve. The minutes of its March 20-21 policy meeting released Wednesday showed a “strong majority” saw downside risks for the U.S. economy from the prospect of retaliatory trade actions. The world economy must avoid being sucked into a protectionist spiral that undermines the momentum of global growth, International Monetary Fund Managing Director Christine Lagarde said on Wednesday.

  • Read more on the euro zone’s latest unpleasant economic surprise 
  • Draghi’s message that the real threat is the hit to confidence
  • ECB says don’t worry about the economy, but it is a puzzle
  • Why the Fed sees a trade war as a bigger risk than inflation
  • And what China says about its detailed plan to hit back

Euro-area data from inflation to retail sales and business surveys have missed forecasts this year. Meanwhile, U.S. President Donald Trump’s administration has proposed tariffs on imported steel and aluminum, from which a number of U.S. allies would be exempt, and threatened to slap additional measures on as much as $150 billion of Chinese goods. China has pledged to hit back.

The ECB’s Governing Council next meets to set policy on Apr. 26, when officials are likely to discuss how and when they might be able to end their bond-buying program.

At the March meeting, they reiterated their commitment to spend 30 billion euros ($37 billion) a month on public and private debt through September, while omitting a pledge to increase that amount should conditions worsen. In his press conference after the meeting, Draghi said the move was “backward-looking; it doesn’t send any new signal.”

The account suggests that some officials see it differently.

“The view was put forward that the Governing Council’s criteria for a sustained adjustment in the path of inflation could be assessed as close to being satisfied over a medium-time horizon,” the account showed. “However, the broadly agreed conclusion was that the evidence for a sustained rise in inflation toward levels consistent with the Governing Council’s inflation aim was still not sufficient.”

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