Draghi to Attend Fed's Jackson Hole Before Key ECB Decision

Updated on
  • President is scheduled to be at Kansas Fed’s retreat in August
  • ECB’s Governing Council may set path of QE two weeks later

Schaffrik, Kohli on the Future of ECB Bond-Buying

Mario Draghi will attend this year’s U.S. Federal Reserve symposium in Jackson Hole, opening the possibility that he could send a message on the European Central Bank’s bond-buying program as the euro area becomes less reliant on stimulus.

The ECB president is scheduled to attend the Kansas Fed event in Wyoming, an ECB spokesman said. The annual gathering will take place August 24-26, less than two weeks before Draghi convenes a meeting of the decision-making Governing Council in Frankfurt.

The appearance in Jackson Hole will be charged with symbolism as the ECB’s three-year campaign against the risk of euro-area deflation draws to an end. When Draghi last spoke there, in 2014, he added a line to his prepared remarks saying inflation expectations had fallen “at all horizons.” The comment was made without consultation with the Governing Council and heralded the large-scale asset purchases that would start six months later.

The bond-buying program is set to total 2.3 trillion euros ($2.6 trillion) by the end of this year, and has been bolstered by negative interest rates and free loans to banks.

While euro-area inflation is still short of the goal of just under 2 percent, Draghi used a speech at the ECB Forum last month in Sintra, Portugal, to say that “the threat of deflation is gone and reflationary forces are at play.” That sent the euro and bond yields surging on speculation that the central bank is almost ready to pare back stimulus.

Tapering Discussion

The Governing Council will next set policy on July 20, but most economists expect any major announcement on stimulus to come no sooner than the Sept. 7 session, when policy makers receive a new set of quarterly forecasts. Officials haven’t yet formally discussed winding down QE, which is scheduled to run until at least December.

A change in stimulus settings is likely to come in the fall, Bank of France Governor Francois Villeroy de Galhau said on Saturday. The ECB will have to “adapt the intensity” of its accommodative monetary policy to the progress toward its inflation goal of just below 2 percent and the economic recovery, he said.

Villeroy and Executive Board member Benoit Coeure have suggested in recent days that the Governing Council’s action last December could serve as a blueprint for adjusting policy without tightening financial conditions. At the time, the ECB announced the monthly level of bond buying would be cut to 60 billion euros from 80 billion euros starting in April, arguing the reduction was reflective of a lower risk of deflation.

“If needed, the Governing Council will continue to adjust its instruments both qualitatively and quantitatively,” Coeure said. “But when this is needed, it should do so carefully and flexibly, and based on what matters for us within the framework of our mandate: the inflation outlook.”

Consumer prices increased an annual 1.3 percent in June. The ECB predicts the rate will accelerate to an average of 1.6 percent in 2019.

(Updates with comments from Villeroy and Coeure starting in seventh paragraph.)
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