Christine Lagarde faces her first real test at ECB debut meeting

Steering markets with the language of monetary policy is a tricky business. Every nuance counts and even semantics can move markets. New President Christine Lagarde will chair her first European Central Bank (ECB) meeting and the subsequent press conference on Thursday and all eyes and ears will be on her. The big question is whether there will be any hints on future policy decisions.

“Thursdays press conference will be a watershed for financial markets. More realistically, the policies already announced and set on auto-pilot by (ex-chief Mario) Draghi, are unlikely to change, at least immediately,” said Lorenzo Codogno in a research note. “However, any hint on the future direction of policies would be hugely important, and potentially highly relevant for financial markets.”

The new ECB president has announced a swift policy review, the first the euro zone central bank has performed since 2003. She might also see her primary task as reuniting the ECB’s Governing Council, healing the wounds from the controversial policy decision to reinstate quantitative easing (QE) in September. One indication for this interpretation is that in recent speeches she has placed more emphasis on the negative side effects of the current policy stance — more so than what Draghi would have ever done.

Whether or not the ECB will need to ease further in the coming weeks will very much depend on the economic outlook and inflation expectations. On Thursday, the new quarterly projections for growth and inflation will give the markets an idea of what the ECB thinks about both data sets, especially as they will include the effects of the September policy package.