Nick Kounis, head of Financial Markets Research at ABN AMRO, points out that the Governing Council of the European Central Bank sees impact of trade war on inflation as ‘ambiguous’.
Key Quotes:
“The account of the ECB’s June Governing Council meeting did not add a lot of new information compared to the press conference following the policy decisions. However, there was an interesting discussion about the impact on inflation of a possible escalation of trade wars.”
“The account notes that ‘concerns were expressed about the possibility that such tensions could lead to a more general decline in confidence throughout the global economy, beyond any direct effects from the imposition of tariffs. Against this background, the balance of risks to the global economic expansion continued to be assessed as tilted to the downside’.”
“The ECB’s uncertainty about the net impact on inflation of a trade war casts some doubt on its reaction function in the case of a sharper escalation in protectionism.
“In our view, as long as inflation expectations remained anchored, the ECB would likely easy monetary policy in case of a full-blown trade war. However, the possible inflationary impact might mean it would not move as quickly to provide stimulus as would be the case in a typical economic shock.”
Share
