By Joyce Yu
The euro fell on Thursday as the European Central Bank proceeded with caution to unwind years of loose monetary policy.
ECB said it was halving its stimulus to 30 billion euros a month, but made clear that any rise in interest rates remained way off in the distance.
“Mario Draghi has once again stressed that the ECB will maintain a very gradual approach to its monetary policy, and that short term rates will not rise before well after purchases have been stopped,” Julien-Pierre Nouen, Chief Economic Strategist at Lazard Frères Gestion, told the Reuters.
This move is in line with economists’ estimates and will take ECB’s total holdings to at least 2.55 trillion euros. Nevertheless, the central bank stressed that it’ll move extremely cautiously, keeping its pledge to step up or extend buying further if needed. It also changed the language on its reinvestment strategy for maturing debt, and reiterated that banks will be able to borrow as much as they need in refinancing operations.
“The door is left open to extend the asset-purchase program yet again,” said Ken Wattret, an economist at TS Lombard in London. “Though the likelihood of this happening for a fourth time looks rather lower now for various reasons, including the positive economic outlook.”
The decision marks a watershed moment for Mario Draghi, whose tenure as the chairman of ECB is heading into the final two years. During his presidency, Mario Draghi managed to contain the fallout from the region’s debt crisis and stave off deflation with loose monetary policy. European’s economy is now back on track, and inflation is finally on the verge of picking up.
After a retreat from record levels on Wednesday, the Wall Street traded in narrow range on Thursday morning following ECB’s announcement.
Separately, a job report released on Thursday showed the number of Americans filing for unemployment benefits increased less than expected last week, suggesting the labor market continued to tighten after recent hurricane-related disruptions.
Initial claims for state unemployment benefits increased 10,000 to a seasonally adjusted 233,000 for the week ended Oct. 21, the Labor Department said. Claims fell to 223,000 in the prior week, which was the lowest level since March 1973. They have declined from the almost three-year high of 298,000 hit at the start of September in the aftermath of Hurricanes Harvey and Irma, which ravaged parts of Texas and Florida.
The claims report also showed the number of people still receiving benefits after an initial week of aid declined 3,000 to 1.90 million in the week ended Oct. 14, the lowest level since December 1973.
But there are still downsides, such as slow growth of pay which registered a 2.9% year-on-year growth in September, the strongest in eight years. It’s too early to know whether that was temporary. Before the Great Recession, wages grew around 3% each year. A healthy labor market should generate fatter paychecks to the tune of 3% to 3.5%. Those higher wages help workers keep up with inflation and keep the consumer-driven economy strong.
Geographical difference is also worrying as unemployment remains high in some places, like Alaska, New Mexico, and Washington, D.C., according to a CNN report.
