ECB still behind the Fed even with eurozone outpacing US - Business News | The Star Online


ECB still behind the Fed even with eurozone outpacing US

FRANKFURT: The eurozone economy had a great start to the year, growing faster than the US – but that says more about the currency bloc’s late recovery than American weakness.

The euro is trading at the strongest in more than six months against the dollar as prospects for the region’s expansion continue to improve. Yet the world’s two largest economies are also at very different stages.

Eight years of almost uninterrupted US growth have allowed the Federal Reserve to start raising interest rates, while the younger recovery in the 19-nation bloc has only just reached a point at which the European Central Bank (ECB) is comfortable even discussing unwinding stimulus.

ECB president Mario Draghi will give more clues on the outlook at the rate decision today. The Fed meets next week.

Draghi has acknowledged that downside risks to the economic outlook are diminishing, laying the ground for a gradual shift in stance as early as this week, when policy makers gather in Tallinn for one of their regular out-of-Frankfurt meetings.

The biggest challenge – and not just in Europe – is subdued inflation.

For the ECB, fresh forecasts through 2019 may be key in determining whether momentum in price growth – and the economy – is strong enough to start making plans to unwind asset purchases and eventually raise interest rates.

At the Fed, policy makers will have to decide whether a recent setback in inflation and uncertainty about Trump’s tax reform and infrastructure-spending plans may warrant a reassessment of the current road map that envisages three rate increases this year and potentially a reduction in the balance sheet.– Bloomberg