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NYT
FRANKFURT
A lot is happening in the world of central banks.
In Washington, the Federal Reserve has raised interest rates again to brake the sizzling US economy. And the Bank of England is also in rate-raising mode.
Not so the European Central Bank, which left monetary policy unchanged Thursday. No one expected Mario Draghi, the bank's president, to drop any bombshells when he faced reporters after the bank's final meeting of 2017. But there were lots of questions about what will be coming in the new year.
It could be a watershed. The central bank's own economists substantially raised their estimates for eurozone growth, portending an end to the crisis measures that have been in place in the 19-nation common currency area since 2008. That would usher in a new era, with monetary policy returning to normal and the central bank beginning to gently push up interest rates.
Draghi's news conference Thursday revolved around how soon the stimulus measures might end.
While he said there has been"a significant improvement in the growth outlook," he steadfastly avoided any statements that would change investor expectations. Still, Draghi offered a few clues about the central bank's evolving views.
Here are some of the key takeaways.
How much stimulus, and for how long?
The European Central Bank's Governing Council set a course for 2018 when it announced plans in October to scale back the purchases of government and corporate bonds that it had been using to hold down interest rates and stimulate inflation. The bank said it would keep buying bonds at a reduced rate at least through next September, and left open the door for continued purchases after that.
The Governing Council did not change its stance Thursday, repeating that it can step up the stimulus measures at any time if the eurozone economy starts to flag. That's a sign that interest rate increases are still far in the future.
But some members of the Governing Council have been suggesting that the bank should move more quickly. Beno'eet Coeur`, a member of the bank's executive board, said last month that he hoped the need for central bank bond buying would have run its course by September.
Draghi declined to make any similar statements Thursday."There isn't any change in the language or intentions," he said.
Will the economy stay on track?
The eurozone economy is humming. In new estimates published Thursday, the European Central Bank's economists said economic growth would accelerate to 2.3 percent in 2018. That compares to their estimate in September of 1.8 percent.
At the same time, central bank economists predict that inflation ” the figure that influences central bank policy the most ” will remain well below the official target of 2 percent through 2020. That is yet another sign the bank is in no hurry to begin raising interest rates.
Draghi betrayed some concern Thursday about what will happen when the central bank is no longer flooding the eurozone with cash. He acknowledged that very low interest rates can lead to asset bubbles.
"The ground is fertile for these risks," he said. But he added that evidence of over-exuberant prices for real estate or other assets seem to be limited to a few local areas which are not a threat to the eurozone as a whole."We are not seeing systemically important financial stability risks," he said.
Out of sync?
The European Central Bank exercises strong influence over interest rates in the eurozone but it is also at the mercy of financial markets, which react to a host of forces ” not the least of which is what the Fed is doing.
Now that the Fed is busy raising rates, there is a risk that the rising cost of credit could spill over to the eurozone, slowing the economy before the European Central Bank is ready. The Bank of England raised its benchmark rate in November for the first time in a decade. The British central bank left rates unchanged at its meeting Thursday, but with British inflation on the rise more increases could be on the way next year.
In effect, the European Central Bank is moving at a speed different from that of its two most important counterparts, even though their economies are closely intertwined. Currency exchange rates, for example, react strongly to central bank policy and have far-reaching economic consequences, determining how much people must pay for imported goods and also how cheaply companies can sell their products abroad.
In fact, the euro spiked briefly as Draghi spoke Thursday but then retreated.
