What the ECB Will and Won't Do This Week

When the Governing Council of the European Central Bank meets on Thursday, it will continue to prepare markets for the start of its long process of normalizing its unconventional monetary policy. But the central bank is unlikely to announce the specific details that markets and others are looking for, and not just because of the complexity of the task at hand. Central bankers will also seek to keep their policy options wide open as they weigh competing and, in some cases, puzzling and uncertain, policy considerations, even as they think about how best to sequence their measures with those of other systemically important central banks, particularly the Federal Reserve.

As it presents its latest economic assessment and policy findings, the ECB is likely to support the consensus view in the marketplace that, as of January 2018, it will be reducing the pace of monthly asset purchases. This belongs in the context of a gradual phasing out of the program, combined with rate hikes and, much further down the road, an outright contraction of a balance sheet that has ballooned as a result of the large-scale asset purchase program. What the central bank is unlikely to do, however, is provide the exact details of this process, including the lower scale of purchases for the first half of 2018, preferring instead to keep that for a Governing Council meeting later this year.