Most members of Handelsblatt’s Shadow ECB Council argued for no policy changes. They see no need for an immediate reaction to the announced strategy shift of the Federal Reserve.
Growth and Inflation forecasts revised
Members of the ECB Shadow Council kept their inflation forecasts constant for 2020 at 0.3 percent and for 2021 at 1.1 percent. However, they were reducing their forecast for 2022 compared to three months earlier from 1.4 percent to 1.3 percent. The ECB June projections foresee inflation for 2020 at 0.3 percent, for 2021 at 0.8 percent and for 2022 at 1.3 percent.
The members were also reducing their GDP forecasts for this year from minus 7.0 percent to minus 7.9 percent and for 2021 from 5.5 percent to 5.4 percent. By contrast the members revised their forecasts upward for 2022 from 1.8 to 2.0 percent. The ECB June projections foresee GDP growth for 2020 at minus 8.7 percent, for 2021 at 5.2 percent and for 2022 at 3.3 percent.
|Shadow Council macroeconomic forecasts (ECB’s June projections in brackets)|
|2020||0.3 (0.3)||-7.9 (-8.7)|
|2021||1.1 (0.8)||5.4 (5.2)|
|2022||1.3 (1.3)||2.0 (3.3)|
Contributors: D. Antonucci, M. Annunziata; A. Bosomworth; S. Broyer; J. Callow; F. Ducrozet, J. Henry, J. Krämer, D. Schumacher, K. Utermöhl.
*Harmonized Index of Consumer Prices, a weighted average of price indices of eurozone countries.
Concerning the current monetary stance, most members argued for no changes. Some members expressed concerns about the recent rise of the exchange rate of the Euro and especially the speed of this appreciation. They said that this could be addressed by a verbal intervention, while others suggested that words would not be enough and action might be required in one of the next meetings.
It was argued that the main instrument to address the exchange rate would be a further cut of the deposit rate. Two members said that the ECB should indicate its openness for such a move. This measure could be combined with an increase of the tiering multiplier to cushion negative effects of more negative rates for banks.
Implications of the Fed’s strategy shift
The members were divided about the impact of the recently announced strategy shift of the Federal Reserve (Fed). In its new strategy the Fed puts more weight on bolstering the labor market and less on worries about too high inflation. Several members stressed that the ECB already conducted some subtle changes to its framework by emphasizing the symmetry of its inflation target and its medium-term perspective. They argued that this means that the ECB is already operating in a framework similarly to the Fed.
Others warned that the strategy shift of the Fed could lead to a further depreciation of the Dollar vis-à-vis the Euro, if markets expect a looser monetary policy stance in the US than in Europe. Therefore, the ECB should avoid this impression. One member argued that the ECB would need a more radical strategy shift. He argued for a scheme of monetary control.
Regarding its secondary mandate to support EU economic policies, most members said that the ECB should focus itself on its primary mandate of securing price stability. It was argued that it should not overburden itself with other tasks and raise expectations which it cannot meet. One member said it could stress its secondary objectives more in its communication when it addresses the broader public rather than to financial experts.
Members’ individual vote on the ECB’s deposit rate (currently minus 0.5 percent):
|Member||Affiliation||Deposit rate||Asset Purchases|
|José Alzola||The Observatory Group||Unchanged||Unchanged|
|Marco Annunziata||Annunziata Advisors||Unchanged||Unchanged|
|Daniele Antonucci||Quintet Private Bank||Unchanged||Unchanged|
|Elga Bartsch||Blackrock||Unchanged||+500 bn.|
|Andrew Bosomworth||Pimco||+ 50 bp||Unchanged|
|Sylvain Broyer||S & P Global Ratings||Unchanged||Unchanged|
|Jacques Cailloux||Rokos Capital||Unchanged||Unchanged|
|Julian Callow||Element Capital||Unchanged||Unchanged|
|Thomas Mayer||Flossbach von Storch|
September 4th, 2020
Written by Jan Mallien
The ECB Shadow Council was founded in 2002 upon an initiative of Handelsblatt, the German business and financial daily. It is an unofficial panel, independent of the ECB/Eurosystem, and comprising fifteen prominent European economists drawn from academia, financial institutions, consultancies, companies and research institutes.
The Shadow Council usually convenes by telephone conference on a quarterly basis. Its discussions are intended to formulate an opinion as to what monetary policy decision its members believe that the ECB's Governing Council ought to undertake, both at its forthcoming meeting and also on a three month horizon. Shadow Council members are encouraged to submit their own economic projections for euro area activity and inflation on a monthly basis, which constitutes the panel's forecast consensus as published each month.
The Shadow Council's discussions and recommendations differ from surveys of economists concerning the outlook for ECB interest rates because the Shadow Council recommendation expresses the majority view of its' members opinion about what the ECB should do, rather than what they forecast it to do (and hence the "normative" views as expressed by Shadow Council members on what they consider the ECB ought to do can and often do differ from what they might say they expect the ECB to do). This "normative perspective can, however, give an early indication of shifts in the balance of opinion in the expert community, as can be seen by comparing the historic recommendations of the Shadow Council against subsequent decisions undertaken by the ECB Governing Council.
Members of the Shadow Council base their recommendations on the ECB's objectives as defined under the EU Treaty, though Shadow Council members do not necessarily adopt exactly the ECB's specific interpretation of its mandate.