Mario Draghi’s speech at Jackson Hole to be watched for signals of quantitative easing drawdown
US and EU central bank chiefs will deliver closely watched speeches at a gathering of global financial leaders in Jackson Hole, Wyoming today.
In 2014, European Central Bank President Mario Draghi used the gathering to argue Europe should spend its way out of trouble, rejecting austerity measures and signalling the start of quantitative easing in the Eurozone.
QE involves central banks buying bonds in order to inject cash into the market, thereby lowering interest rates, boosting inflation and (hopefully) stimulating spending. Such programs were instituted in the US following the 2008 financial crisis. After spending some $4.5 trillion, the US halted its program in late 2014, but the EU has continued at pace and will have spent $2.4 trillion by years end.
But with a buoyant Eurozone economy—inflation is up from 0.4% to 2.2% since Draghi’s Jackson Hole speech three years ago, while economic growth has doubled—it’s no secret that QE is drawing to a close, probably in a year’s time. This is likely to end an era of cheap loans, risking a market shock.
Investors will watch today for hints of how and when this will be done, although insiders have tamped down expectations of a “big monetary policy speech”.
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