Mario Draghi shows the power of expectations

David Beckworth

"The response was euphoric - stock markets railed, risk premiums on the Eurozone periphery fell, and the Euro strengthened - and demonstrated that expectations matters.Without actually doing anything, the ECB was able to catalyze a shift in portfolios toward riskier assets that, if followed through, could kickstart a recovery. It is what Matt O'Brien calls the Jedi mind trick or Nick Rowe dubs the Chuck Norris approach to central banking. This power by central banks to manage expectations is often overlooked or dismissed by many observers. The markets' response to Draghi's speech should give them pause."