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World's biggest central banks ECB AND FED at loggerheads over monetary policy implementation - Alldamoney

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World's biggest central banks ECB AND FED at loggerheads over monetary policy implementation


Last week, in Chicago Fed Chair Janet Yellen seemed to have given her stamp of approval on a March rate hike, while her European Central Bank counterpart on Thursday resisted calls to start tightening policy against surging inflation signaling the Fed and ECB has decided to go their separate ways in monetary policy implementations.


With French and Dutch elections around the corner, the ECB is steering clear of any policy that may give emerging populist movements some chance but robust U.S. jobs data on Friday could seal the case for another Federal Reserve hike in March.
Making two of the world's biggest central banks to find themselves with a big policy gap, about minus 0.4 percent rate in Europe and more than 0.75 percent in Washington.


Still calls keep mounting, mostly in Germany, for the ECB to raise its negative interest rates and scale back its 2.3 trillion euro ($2.42 trillion) bond buying scheme since growth it’s on its best run since before the financial crisis and inflation just within the ECB's target.

Gray bars indicate recessions. Rates usually rise before a recession, rates are set to rise soon. (Source: FRED)



Having tightened policy in 2011 before the euro zone debt crisis started escalating, Mario Draghi ECB President won’t hear about winding down on asset buys therefore pushing back on speculators who are calling for a rate hike the ECB will be careful not to move too early, even if it means being called out for moving too late by some.
Meanwhile, The Fed must deal with what Yellen dubbed a high-class problem in the United States: solid growth, full employment and returning inflation. Higher job growth keeps threatening to overheat the labor market, pushing inflation heading toward its target, the range central bank officials estimated in December could be reached this year.

The Market’s reaction has continued to remain positive the SPY ETF (SPY), which tracks the S&P 500, saw $8.2 billion in new inflows, its single day highest since December 2014, though the Trump administration’s early days have been filled with internal political chaos.

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