Former ECB head: Neither Fed rate hike, nor further ECB easing should surprise markets
Ignore the warnings from the International Monetary Fund (IMF) and the World Bank about the dangers of tightening. That was the message of former European Central Bank (ECB) President Jean-Claude Trichet for Fed chair Janet Yellen, with just two days before the highly anticipated Fed meeting.
In an interview with CNBC, Trichet noted that the central bank has to be independent of the self-appointed advisers, as it is "part of the credibility of the monetary policy."
Earlier this month, both the World Bank and the IMF warned the Fed against increasing rates until the world economy was on a surer ground. Their calls followed a multi-weeks turmoil in global markets, driven by jitters over China's economic downturn and the prospect of higher borrowing costs in the world's largest economy.
"They can give good advice on a more medium term basis, but not on a precise decision at a certain moment," Trichet said. "I really think it is not their mandate, to do that."
If the Fed does decide with an increase this week, no one should be taken aback, he added. Policy makers were very clear in saying the hike was approaching, so no market player should say they were not warned in advance.
Trichet also said further monetary easing by the ECB shouldn't come as a surprise to investors either.
He explained that since the very beginning when QE was started, it was clearly said it would go up to September 2016, and over and above this deadline if necessary.
Earlier this month, the ECB downgraded its growth and inflation forecasts and left the door open to extend and widen its bond buying program that currently stands at 60 billion euros per month and is due to expire in September 2016.
In his assessment of the euro zone economy, Trichet said he believed the 19-nations bloc has almost completely regained ground, except for Greece.
The echo of the sovereign risk is progressively
being removed, "and it's clear that when you look at Spain, Spain is
growing now and quite correctly, Ireland is growing, Portugal is
growing," he said.
Greece is a special case, Trichet added, "but those who were in the heat of the crisis, now the hard work has been done and the adjustment is paying off now in terms of growth and job creation," he added.
As for the shared currency, ex-ECB president believed it traded at an appropriate level given Europe's current growth dynamics.
"At the present moment, it seems to me that taking the European perspective, the present level is correct," he said.
