The Fed And Ecb On Two Different Beasts Right Now

1866 Words Sep 6th, 2015 8 Pages
The Fed and ECB: Two Different Beasts Right Now
The European Central Bank (ECB) was the last to embrace quantitative easing, partly due to political constraints. By contrast, the Fed, under former Chairman Bernanke, did not face the same headwind and was prepared invoke three tranches of asset purchases due to elevated economic uncertainty. How times have changed! ECB President Draghi last week announced that an expanded round of quantitative easing could be invoked beyond September 2016 if financial markets sold off further and threatened to undermine the respective outlooks for economic growth and inflation. Forecasts for real GDP growth and consumer prices have already been reduced by the ECB and downside risks have been attached to these estimates. It appears, therefore, that the ECB under President Draghi is more prepared to behave like the Fed under former Chairman Bernanke. The reaction of Eurozone equity markets and the single currency to the ECB President’s announcement was textbook in nature. It appears that the strengthening of the euro versus the dollar in late-August did not please the ECB: President Draghi warned that negative consumer price inflation was likely in the latter months of 2015. Continued appreciation of the euro would only have intensified deflationary pressure. It appears, therefore, that the currency is once again being used as a safety valve. By contrast, the undershooting of US inflation and dollar strength does not appear to have deterred at…

More about The Fed And Ecb On Two Different Beasts Right Now

Open Document