The Market Is Controlling Central Bank Policy

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In the past few weeks we have reported on the economic weakness in Europe. The Citi Economic Surprise index for Europe is extremely negative showing reports are missing economists' expectations. The ECB's Mario Draghi responded to this recent weakness by stating growth may have peaked for the cycle. This is a reasonable assessment, but it's more than an economic forecast. Every statement by central bankers has monetary policy implications. This could mean more dovish policy. This is an interesting predicament because the ECB has interest rates in the negatives and QE hasn't even ended yet. The ECB will wait until July to decide the fate of QE.

Policy is still extremely dovish with the goal of normalization in the next few years. Peak growth at the beginning of this process is a disaster. The biggest problem is normalization has gone too slow. It would be interesting to see what policy would be put in place if Europe were to fall into a recession in 2019. Clearly,
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