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Wednesday IMF head Christine Lagarde urged the European Central Bank to stave off deflationary pressure. Lagarde said “More monetary easing, including through unconventional measures, is needed in the euro area.” She went on to comment about the current recovery in Europe, “In the euro area, a modest recovery is now taking hold, stronger in the core and still very weak in the south. There are encouraging steps we have seen in the last few months, the establishment of a banking union.”

These comments came on the heels of euro zone inflationary data that marked the sixth consecutive month of sub-1% numbers. Draghi followed up yesterday at his monthly ECB press conference, “We don’t exclude further monetary-policy easing” stating that the ECB is prepared to “Act swiftly if required.” The ECB board has been discussing the possibility of large-scale bond purchases and even negative interest rates.

While the language has changed across the pond to be about as dovish as you can be without doing anything, they still haven’t committed to doing anything. My question is what would force the ECB into action? Rates spiking on Italian and Spanish debt? A sub 0.5% inflation reading?

Six months in a row of numbers inside the ECB admitted “danger zone” have the IMF head and ECB President up at arms. What else would they need to see to get something to happen?

I think another month or two below 1% would be enough to at least outline steps the ECB could take to ease fears of deflationary pressure. Let me know your take on things.

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