Last week we could witness the first press conference of Bernanke, highlighting the thoughts behind the FOMC decision to not raise the interest rate (in this pre-election year). Todays unemployment data may have already been at their table, who knows. Yet our attention was focused in Trichet and the press-conference. And we could note that the questions on this side of the ocean were better. Yet the answers by Trichet were of a different kind than those of Bernanke. Where Bernanke would be getting back on the technical/economical picture and monetary arguments themselves, Trichet very clearly sticks to what he can say and what he must say. He's quite the diplomat, so every word counts.
Essentially, the ECB has decided to not further increase the interest rate and take a wait and see approach. This has to do with most recent figures on retail sales in EU, which weren't really positive. So the ECB will maintain its current stance and will also continue to note that the non-standard measures of monetary policy are clearly temporary (a frase being used so long now, that it starts to wear off and may now become a nice one-liner for future references to situations where politically one has to defend a policy line that legally can't be upheld).
What was remarkable, was that the ECB (having had a meeting with all EU-member states and the EU-commissioner present) was very clear as to the need for debt-laden countries to comply with all agreed measures. He also outlined utterly clear that there would be no writedowns of Greek debt. None whatsoever. So while the last couple of times, Trichet had toned down a bit on his political 'rants' he was now fully back and armed. He was also quite clear as the importance of preventing second round inflation effects. And perhaps he hoped that if he spoke about it clear enough, the effect might not start to occur...
A question by a reporter about how Trichet evaluated the Bernanke-press conference, was of course left unanswered by Trichet. Yet, I guess he had anticipated the question with his press-people, in order to convey a message to the markets. He used the question to explicitly outline that he fully agreed with both Geithner and Bernanke as to the preference and importance attached to maintaining a stable currency exchange rate. And somewhere in the press conference he also spoke about the intricate web of central bankers.
Having witnessed this central-banking-web close by, and appreciating the diplomatic skills of Trichet, there must have been some phone calls between Bernanke and Trichet. I image a call like this:
B: So you;re not going to raise either?
T: I can't tell you of course, we haven't decided yet, but it appears unlikely to me..
B: Ah... well, then, that's good news
T: Tell me, cher-ami, how do you mean?
B: Well, markets may expect more from ECB than you give now, so the euro will slide and I will get the press of my back with their comments as to me, talking the dollar down...
T: Ah, I see, well, if that's your concern I'll see if I can hint a bit around during the Q&A session
B: Ah, Jean-Claude, well, this is all hypothetical of course, as you haven't decided anything
T: No, indeed, but as always I have enjoyed sharing our views on the matter.
B: Same here. Speak to you later
T: Yes, bye bye.
The results of both the press conference and the statements by Trichet speak for themselves. Euro quite a bit lower and everyone now anxiously awaiting tomorrows US-data. Which in my personal view will show that the recovery is not taking off in the US (as it isn't in the EU). Which leaves the stock markets very overvalued and create a dim economic 'muddle-through' perspective. Where some potential for economic growth is left unutilized due to the political choice to increase internal buffers at banks and to force banks into low-risk (thus low-lending) profiles. Which leaves us open to further shopping and take-over by other parts of the world with a bit more cash at hand..
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