Trichet expresses the mainstream view of monetary policy:

“The financial market correction — it’s a very significant correction with turbulent episodes — that we are observing provides a reminder of how a disturbance in a particular market segment can propagate across many markets and many countries, Trichet said in a debate at the European Parliament economic and monetary affairs committee.

But at times of financial turbulence it is the duty of the ECB and other central banks to anchor inflation expectations, he said.

“In all circumstances, but even more particularly in demanding times of significant market correction and turbulences, it is the
responsibility of the central bank to solidly anchor inflation expectations to avoid additional volatility in already highly volatile markets,” he said.

4 Responses

  1. In light of the Asian and European markets upward response last night to the rate cut by the Feds, do you believe that the markets will continue to respond in this direction. Seems like the Fed and their actions are not getting the responses that they have anticipated, and gotten, in the past.

  2. Hi Jim!

    The Asian and European mkts are acting as if it’s only a matter of time before the Central Banks ‘cave in’ and cut rates.

    The Fed isn’t getting the response it would like because interest rates have nothing to do with the issues that concern them!

  3. Warren,
    I agree with you on interest rates and what’s happening, but short-term, the Asian, European, and US markets seem to be acting like they can’t get enough of rate cuts.
    The markets seem to have already digested this last rate cut and are already anticipating another cut from the Fed’s at there next meeting.
    And I’m not holding my breathe that the Fed’s wont bow down and give the market what it believes it needs…

  4. Yes, the Fed may remain too worried about the unknown to not give the market what it’s pricing in. That said, Feb ff are now only pricing in about a .45 cut right now, down from .65 yesterday.

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