The two world’s most prominent central banks, the Federal Reserve (Fed) and the European Central Bank (ECB) have according to their respective Presidents Janet Yellen and Mario Draghi confirmed an assessment that’s not very encouraging. The Fed’s latest “Beige Book” reported a “modest” or “moderate” pace of overall economic growth across the United States.
Indeed, a number of contacts told the Fed they are anticipating weaker growth and attributed the situation to uncertainty and weakness in global markets. On the ECB’s side, they continued to expect the economic recovery to proceed at a moderate but steady pace at just 0.3% of real GDP growth in the euro area in Q3 2016.
This common assessment from Europe and America strengthened the hypothesis of the possible setback of the whole Quantitative Easing (QE) policy especially in Europe where in light of the exceptional means that’ve been engaged, the macroeconomic outlook remains quite weak. The unprecedented situation of negative interest rates also adds a potentially dangerous unknown to this mediocre trend.
If Draghi reiterated that the ECB will continue to act if warranted, he recalled that an extension of the QE beyond March 2017 hadn’t been envisaged contrary to financial markets whose disappointment is proportional to their expectation of such extension.
Those two events by the Fed and the ECB triggered some short-lived animation during the markets’ intraday session on September 8, 2016 after historically low volumes and volatility this summer, providing further evidence of the importance of central banks for financial markets.