Turning the Spigot

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The ECB on Monday turned the taps to full. The U.S. Federal Reserve may soon close theirs.
  • Why it matters

    Why it matters

    The fact that the world’s two largest central banks are no longer acting in unison is a sign of the divided growth prospects for the United States and Europe and could have a massive impact on global financial markets.

  • Facts


    • The ECB plans to buy €60 billion bonds and other assets per month starting Monday until at least September 2016.
    • The U.S. Federal Reserve is expected to raise interest rates by the end of this year for the first time in nine years. Some expect a move already in June.
    • Emerging markets could see a wave of money leave their shores and head towards the United States. Some fear a wave of bankruptcies.
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There was a time when central bankers in Europe and the United States behaved much like soldiers – always in step with each other. If the U.S. raised or lowered interest rates, Europe would quickly follow suit.

The days of monetary harmony are over. With their economies heading in wildly different directions, the gulf between the monetary policies of the world’s two most powerful central banks has never been wider.

While the United States has mostly recovered from the 2008 financial crisis, Europe is still reeling. Insiders at the European Central Bank figure the European continent is at least two years away from a solid recovery like that seen in the United States – and that recovery could yet be eroded if a crisis in Greece spreads to the rest of the continent.

The trans-Atlantic growth divide is widely expected to get worse before it gets better. Europe’s economic output, at around 1.5 percent, is likely to be about half that of the United States this year. The 19-nation euro zone’s unemployment rate, currently at 11.2 percent, is more than double that across the Atlantic.

After years behind the curve, the European Central Bank is finally reacting to the growing chasm. On Monday the Frankfurt-based ECB opened the monetary spigot further, launching a €1.14 trillion bond-buying program first announced in January and designed to pump cheap money into Europe’s economy. Interest rates in the euro zone were already been pushed to a record low of 0.05 percent in September.

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