Mario Draghi has just passed the halfway mark of his term in office. You don’t have to be a prophet to predict that the events of the past week will cast a long shadow over the rest of his presidency of the European Central Bank.
Mr. Draghi, the great interpreter of markets, has miscalculated. Deliberately or not, he fueled expectations that he was unable to fulfill. Even though the ECB’s quantitative easing program was beefed up on Thursday to €1.5 trillion ($1.63 trillion) and the negative interest rate on deposit accounts was increased, the euro shot up by almost 5 cents in an otherwise sluggish foreign currency market, while stock markets plummeted.
Some would argue that making investors happy is not the goal of monetary policy. But it was Mr. Draghi who, with the introduction of “forward guidance,” tried to take the markets by the hand and give them the most precise guidance possible over the future direction of monetary policy. It was Mr. Draghi who had developed the reputation of being a sort of magician of the markets.