As expected, we’ll have to wait until October 26th before we get details on the ECB’s plans for QE in 2018 but a taper is still most likely. Draghi raised his 2017 GDP forecast to 2.2% from 1.9%, acknowledging the recent improvement in activity (he said “robust and broad based” but he still believes in NIRP and massive QE because of the obsession with 2% inflation). He didn’t though shift his 2018 estimate of 1.8%. He did his best to jawbone the euro by saying the recent volatility “is a source of uncertainty and which requires monitoring.” That didn’t help as the euro is at the high of the morning at $1.20. Their inflation estimate for 2017 remains at 1.5% while they cut next year by one tenth because of the higher euro. Draghi said “core inflation has yet to show convincing upward trend.” To put this comment into perspective, core inflation is running at the quickest pace since 2013 at 1.2% and the average over the past 15 years is 1.3%. This highlights the madness of the monetary policy Draghi and the ECB are running. The eurozone is at best a 2% growth region.
In the Q&A, he did acknowledge my point above that core inflation is creeping up which then sent the euro even higher (and gold is approaching $1350). He arrogantly said that “this recovery remains dependent on monetary policy.” He then contradicted himself by saying growth is good because of higher disposable income due to a better labor market. Wanting higher inflation however would lower disposable income.
He was so vague on the discussion about different scenarios with what the QE process will follow from here and didn’t tip his hand at all.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor.