European Central Bank Getting Closer to Fed-Style Stimulus
FRANKFURT, Germany -- The European Central Bank has deployed a raft of aggressive measures to boost Europe's economy, but stopped short of the one many economists insist would do the most to help: large-scale purchases of bonds.
That could change sooner rather than later, analysts say, if inflation remains low.
Purchases of bonds using newly created money called quantitative easing have been used with some success so far by the U.S. Federal Reserve, the Bank of England and the Bank of Japan. They can reduce market interest rates, making it cheaper for consumers and businesses to borrow, helping growth.
So why not in Europe?To begin with, the ECB faces technical and practical challenges that other major central banks don't have. It has 18 different government bond markets, raising the question of whose bonds to buy and how many. Beyond that, creating new money has long faced resistance in Germany, the biggest economy in Europe where central bank stimulus measures are looked upon with suspicion and have a prominent place in public discussion. But after Thursday's meeting, things could be shifting. At a press conference on Thursday, ECB President Mario Draghi held the door open to such bond purchases, suggesting Germany has at least softened its outright resistance. If inflation falls further, analysts think the ECB could start quantitative easing. "Are we finished?" he said after the decision. "The answer is no." The ECB is keen to bring up the inflation rate, which at 0.5% is so low it raises fears the eurozone will fall into outright deflation, a crippling downward price spiral. The antidote is to take steps to encourage borrowing and lending and increase the amount of money circulating in the economy.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV