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The European Central Bank (ECB) is set to make some adjustments to its monetary policy, with the potential for a slight slowdown on the horizon. According to recent reports, the ECB may reduce purchases from its Pandemic Emergency Purchase Programme (PEPP) after the ECB meeting in September.
However, the specific details of these changes, such as the extent of PEPP reduction, remain uncertain. Christine Lagarde, President of the ECB, is the driving force behind these potential adjustments.
The underlying trend in economic data across the Eurozone remains stable, with excess demand meeting reduced supply. This situation could lead to further price increases in the near future. However, recent economic data shows some weakness, attributed in part to disruptions in corporate outlooks and uncertainties related to Covid-19. A significant portion of the downward trend in economic data is also due to bottlenecks in supply chains.
Despite these challenges, the overall outlook for the end of the year in Europe remains optimistic. The ECB's monetary policy changes are expected to be balanced, aiming to maintain economic stability while addressing the current economic conditions.
Meanwhile, the US Federal Reserve has delayed its decision on the start of tapering until November due to uncertainty about the spread of the Delta variant. The delay in the Fed's tapering decision has boosted sentiment for risk assets.
On the fiscal front, European fiscal policy, with its supportive measures spanning the entire Eurozone, is expected to boost growth prospects in the coming quarters. This positive outlook, coupled with the ECB's monetary policy adjustments, suggests a promising future for the European economy.
Investors expect relatively little new information from Fed Chair Jerome Powell's speech at the central bankers' meeting in Jackson Hole. It seems unlikely that the hawks on the ECB council want to extend the PEPP or announce further asset purchase programs at this time. However, the impact of these potential monetary policy changes on risk assets and the US Federal Reserve's tapering decision is yet to be determined.
In conclusion, the ECB's monetary policy is set to undergo some adjustments in the coming months. While the details are still uncertain, the overall outlook for the European economy remains optimistic, driven by supportive fiscal policies and relatively strong economic indicators.
