Did ECB’s new stimulus program just upset the Fed’s plans to boost rates?

Did ECB’s new stimulus program just upset the Fed’s plans to boost rates?

The Fed wants to increase rates to hold off inflation as jobs and wages pick up, but the ECB is going in the opposite direction, which could complicate things.

The recent decision by the European Central Bank to start a bond-buying program to stimulate its economy may have upset the plans of Federal Reserve lawmakers, who are trying to stay on track for a midyear rise in interest rates as the economy picks up steam.

The ECB with its inflation-battling program is heading in the ultimate direction as the Fed, which may be seeking to stem inflation in the summer now that the economy is showing strong signs of recovery, according to a Reuters report.

Central banks around the world are increasingly cutting rates and boosting stimulus programs as their economies continue to flounder, making it riskier for the Fed to end its policies enacted during the onset of the Great Recession. Although central banks often enact measures that are at odds with other banks, the divide between the Fed and the rest of the world is a deep one, and it increases the risks to the Fed’s plans.

The ECB has decided to introduce a bond-buying program that would amount to 60 billion euros per month into the Eurozone economy, a stimulus that is similar in size to another quantitative easing program the Fed just ended three months ago as U.S. economic markers continued to improve.

The stimulus weakened the euro to $1.14, the lowest level since 2003, and interest rates on US bonds continued to drop.

Because the foreign outlook is not improving, the decision on the part of the Feds will be much more difficult, according to one analyst as quoted by Reuters.

The Fed’s policy setting committee will need to talk about the risks from overseas. A Fed committee will be meeting this week and are expected to discuss the issue.

Still, the American economy has shown resilience despite the doldrums the eurozone finds itself in, providing ammo to those that say that the Fed should go forward with plans anyway. As long as the economy continues to show job growth and wage growth, some say, there is little reason to change course.

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