Press conferences following central bank Governing Council meetings are highly informative. Analysts and journalists closely scrutinize the responses, suggestions, or even the body language of representatives of the highest monetary authority to identify what might happen in the coming months, particularly with the person chairing the institution. Former European Central Bank President Mario Draghi was a master communicator —among many other virtues— and applied his spells on the markets in the form of credibility. His famous phrase “whatever it takes” halted once and for all the bleeding of brutal speculation against the euro and the sovereign debt of peripheral European countries. Perhaps we have lost something in those press conferences with his successor, Christine Lagarde, who has different skills than Draghi, although the environment and problems are now different. Interpreting her messages involves incredible scrutiny. In fact, for years, artificial intelligence has been used to try to unravel patterns that are not intentionally under human control, but through which monetary leaders may reveal more than they intend.
On March 7, the ECB Governing Council decided to keep unchanged the three official interest rates. At first glance, it might have seemed like an uneventful meeting, but some brief comments from Lagarde caught attention. It was a somewhat indirect statement in the best style of her predecessor (Mario Draghi). It generated an expectation that rate cuts would come from June onwards and not before. The president stated: “We know that this data will arrive in the coming months, we will know a little more in April, but we will know much more in June.” Much had been said about the need to revive the eurozone economy —weaker than that of other regions— with stimulus such as a rate cut. Lagarde tempered expectations about an immediate decision but hinted that not much time remains (by June). A dual message in one sentence reconciled two missions that are hardly compatible. On the one hand, she was helping to keep inflation cooling —the ECB’s main objective— by explaining the delay in lowering rates. On the other hand, she generated positive expectations for economic activity revival by suggesting that rate cuts will start in three months. This can positively affect investor sentiment from now on.
The words were music to the ears. They softened the harshness that oozed from the official statement where the Governing Council indicated that, in view of the existing projections, there are still wage pressures on underlying inflation, and future decisions of the Governing Council will ensure that official interest rates are set at sufficiently restrictive levels for as long as necessary. After this formal message, Lagarde gave confidence to the economy because it seems that financing costs will be reduced in three months. Few words, much impact.