The European Central Bank’s (ECB’s) recent announcement of another stimulus package was met with disappointment by some market participants, but Tom Clarke, co-portfolio manager on William Blair’s Dynamic Allocation Strategies team, told CNBC Europe TV it is a positive for the markets. The new stimulus also highlights that central banks can always do more in response to sluggish economic growth, he says.
Investors have been worried for years that central banks are running out of road to continue to support markets, but that’s proved incorrect, Clarke said in the CNBC interview.
“There really isn’t an end point to the flexibility and creativity that central banks can employ.”
-Tom Clarke, Partner, Portfolio Manager
“There really isn’t an end point to the flexibility and creativity that central banks can employ,” Clarke concluded.
The new ECB asset purchase program of 20 billion euros a month followed the previous round of 60 billion euros a month, and Clarke said he does not see an upper limit to future programs.
Monetary vs. Fiscal Policies
As it relates to monetary and fiscal policies, Clarke told CNBC he believes that stimulus is significantly “skewed” toward monetary policies across the eurozone, and one does not influence the other.
“While the president of the ECB can call on eurozone governments to do more to stimulate growth, governments and heads of state will decide fiscal policy on their own,” Clarke said. “As we’ve seen in the United States, heads of government can ask central banks to do more but central banks—for the most part—still do what they would have done anyway.”
At the same time, nobody thought that the ECB policy rate could be negative as it currently is. Clarke told CNBC that he believes it could go even more negative, especially if tiering of interest rates is involved.