What is the ECB trying to tell us?

ECB President Draghi’s speech earlier this week prompted investors to re-assess the outlook for monetary policy. They now seem to expect the Bank to raise interest rates around the middle of next year. However, nothing in his speech changes our view that it will taper its asset purchases in the first half of next year and wait until 2019 to raise interest rates. After all, while the outlook for growth is fairly positive, inflation is likely to remain subdued, suggesting that the Bank will be cautious about tightening policy. And if the euro rises much further and bond yields continue to climb, the ECB might go even more slowly than we anticipate, perhaps by taking a full year to taper.