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The impossible has happened. The Chicago Cubs won the National League pennant? No, ECB President Jean-Claude Trichet is now in accommodation mode.
Trichet, a legendary inflation hawk, presided over the European Central Bank as it cut its benchmark interest rate by 50 basis points to 2% Thursday.
It was fourth consecutive monthly interest rate cut for the ECB and it matches the record low interest rate reached during the 2003-2005 period. However, Trichet, at the ECB's regular post-meeting news conference, indicated monetary policy makers will avoid a cut in interest rates at its next meeting in February, Bloomberg News reported Thursday.
Economist David H. Wang said there's a bright side and a downside to the ECB's most-recent action, and he isn't so sure the bank is done cutting rates, even with a prospective February pause.
"On the one hand, the rate cut is welcome and Trichet has done much to push aside his extreme anti-inflation psychology," Wang said. "On the other hand, economic conditions in the euro-zone are deteriorating quickly, with euro-zone unemployment rising to 7.8%. They will likely have to cut again, if not in February, then later, in addition to following-through with other monetary measures."
Wang said a big factor in Europe's economic performance - - and future ECB rate decisions - - will be Germany. "Germany' GDP probably contacted by 1.5% in the fourth quarter. If data released later shows it contracted more than 2%, that's another danger sign for the euro-zone, and additional rate cuts will be ahead," Wang said.
Monetary Policy / Economic Analysis: ECB President Trichet may await revised euro-zone growth projections in March before acting again on rates, but the view from here argues that stance may change if Q4 German GDP data indicates a pronounced slowing in Europe's largest economy.
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