ECB's Trichet Signals Possibility of 'Bumpy Road' for Economy

Published August 24th, 2009 - 03:38 GMT

European Central Bank voting members warned of continued economic turbulence in the coming months at the Federal Reserve's annual symposium on monetary policy in Jackson Hole, Wyoming over the weekend. ECB President Jean-Claude Trichet stated that "we see some signs confirming that the real economy is starting to get out of the period of freefall," but that this "does not mean at all that we do not have a very bumpy road ahead of us." The warning comes amid criticism that the bank had done too little too late to save it's economy from receding. "Criticizing a central bank that is acting with a steady hand for being 'behind the curve' rather misses the point," Trichet said. Adding to the defensive stature, Trichet said that "a gradualist approach of this kind may be the most effective antidote to the threat to price stability."

But the key question remains: where will the ECB take its overnight cash rate? While no official policy stance was made clear at the Jackson Hole meeting, one might consider looking at the German and Euro-Zone consumer price index data for July. The final revision for the CPI metric saw the figure surprise to the downside, on a harmonized basis. Indeed, the deflationary environment in which the 16-member bloc finds itself continued to worsen. This week, however, will see the two regions release preliminary consumer price data for August. A Bloomberg survey of 24 economists finds that median estimate for German CPI growth will improve; it is expected that it will stay flat on a monthly basis.

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