No, says Bloomberg columnist Mark Gilbert.
European Central Bank President Jean- Claude Trichet says there's no need to cut interest rates. As the European economy threatens to slide into recession, the futures market says he's wrong...
Traders and investors had already ruled out any prospect of higher borrowing costs for the 12 countries using the euro. Now they are starting to bet that the Japan-style deterioration in the European economy may force an about-face from the ECB in the second half of this year.
The rate on the futures contract for June settlement has declined to 2.12 percent from 2.34 percent at the start of January, close enough to the ECB's benchmark lending rate of 2 percent to show that few investors believe Trichet's oft-repeated bulletins claiming rates are headed higher. The December contract, meantime, is down to 2.19 percent after a drop of almost half a point this year, as rate cuts ping the radar screen...
Actually those numbers sound to me like there may be some possibility of a rate increase built in, but the trend is nonetheless clear.
"The ECB is still too optimistic on growth and too pessimistic on inflation,'' says Dirk Schumacher, an economist at Goldman Sachs Group Inc. in Frankfurt. ``Once the ECB fully recognizes the regime shift that has taken place, it will find room for a 50-basis-point cut in the third quarter.''
Fir his part, Trichet continues to insist that his hands are tied to the contrary...
"If we would go in the direction which is from time to time suggested, we would not get a decrease of rates, we would get an increase of rates, it is as simple as that,'' he said. ``Because we would be considered by economic agents, market participants, observers, investors, savers, as being less credible to deliver price stability over time, they would augment their inflation expectations.''
... and there is this obvious defense against activist monetary policy:
There's "very little that can be done with monetary policy to improve long-term growth potential,'' said Axel Weber, the Bundesbank president and an ECB council member, on April 29. That responsibility lies "all on the side of governments,'' he said.
Gilbert says "That's just not good enough." OK, but is monetary policy really the leading candidate as the source of what ails the euro zone economies?