Daily Comment (January 19, 2017)

by Bill O’Grady, Kaisa Stucke, and Thomas Wash

[Posted: 9:30 AM EST] The ECB decided to keep its interest rates low as well as maintain its quantitative easing program.  During a press conference, Mario Draghi expressed his willingness to extend the current monetary policy as growth within the European Union is still relatively slow.  He also stated that he believes growth is imminent and that those who would like him to increase rates should be more patient, stating “as the recovery firms up, real rates will go up.”  This comes in response to critics from Germany who believe rising inflation is imminent.  Reports show that inflation in Germany rose 1.7% annually, a three-year high, as the Eurozone jumped from an annual change of 0.6% in November to 1.1% in December.  Since the rise in inflation has largely been attributed to oil prices, Draghi stated that there is no data to support the idea that underlying inflation has risen significantly enough to justify a rate hike.

Draghi also appears to be cautious of possible global risks that may affect the economic outlook of the EU.  He declined to comment when asked how he thinks Brexit and a Trump presidency might affect growth within the EU.  His lack of clarity is understandable as no one is sure what policy measures Donald Trump will implement or what a deal between the U.K. and EU will look like.  Trump’s call for a possible tariff on German cars along with Theresa May’s statement that she is willing to leave the EU even without a plan make forecasting Eurozone growth relatively complicated.  Draghi’s decision to stay on the current path while leaving the door open for an extension of quantitative easing is probably a safe option.

In other news, Donald Trump is set to take office tomorrow without most of his cabinet, leading many to question how effective Trump will be in his first 100 days in office.  As Trump is less established than his predecessors, he may have a harder time pushing through some of his agendas.  The longer it takes for him to get his cabinet in order, the harder it will be as the Democrats will look to undermine him.  Despite these concerns, many believe he should have most of his cabinet in place by the end of the month.

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