Doing Its Darndest To Care For The Economy, The ECB Left Interest Rates Alone

Doing Its Darndest To Care For The Economy, The ECB Left Interest Rates Alone
Paul Allison, CFA

29 days ago2 mins

What’s going on here?

The European Central Bank (ECB) erred on the side of caution, keeping interest rates steady on Thursday.

What does this mean?

The ECB is confident that inflation is on a steady decline, with high interest rates making it harder for shoppers to spend and, in turn, forcing retailers to keep prices manageable. But the central bank seems to know that pride comes before a fall, too. So wary of adjusting rates too soon, which could give inflation the breathing room to pick up again, the central bank held them at their heady level. In theory, that should put enough pressure on inflation to push it toward the 2% target.

Why should I care?

For markets: Pick a date, any date.

Just how long the ECB will stick to its strategy is up for debate. On Thursday morning, markets said there was a 62% chance of rate cuts as soon as April. That’s probably because investors know that central banks’ decisions can flip on the mere whiff of changing stats. Remember, the Federal Reserve spent a year insisting that rates would stay lofty for the foreseeable, before suddenly predicting a series of cuts this year.

Traders bet on rate cuts

Zooming out: Friends outgrow each other.

Europe and the US have both avoided a recession so far, and their central banks are each waiting for inflation data to give the green light to cut economy-stifling interest rates. Those similarities explain why the euro and US dollar have been hip-to-hip over for the last year or so. But look at the bigger picture: the European economy has barely budged since the early 2010s, while the US has picked up by more than 50%. And with fresh data showing that the US economy grew a better-than-expected 3.3% last quarter from the same time the year before, it’s no wonder that the dollar has strongly been gaining dominance over the euro for the past decade.



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