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MW: Trichet steering ECB back into reality
 
Commentary: Central bank delivered all it realistically could

LONDON (MarketWatch) -- The market couldn't have expected the European Central Bank to totally junk its inflation obsession.

After all, unlike the U.S. Federal Reserve, the ECB only explicit consideration is inflation, and not economic growth and not financial stability.
And so, ECB President Jean-Claude Trichet on Thursday said there are still upside risks to price stability, even if they have "alleviated somewhat" -- and considering the wage demands from the key German union IG Metall, he has some basis for noting price risks even if oil and other commodities have dropped sharply in value.
But he did make clear the ECB is keeping an eye on the financial market disruptions, noting that "financial market turmoil" has intensified and that economic activity is weakening. See related story.
This isn't the same as making a surprise rate cut. But it is setting the stage for rate cuts down the road from a 4.25% that seems too high with the European economy effectively in recession.
The markets read Trichet in that manner, and the euro sell-off intensified.
The ECB has set the stage for cuts as early as November, or maybe December.
This was the only realistic move that the central bank could have taken in response to the credit crisis -- and it's the one they took.
Source