FED & ECB: towards a reduction in monetary accomodation

Monday 02 October 2017

Research / Market

FED & ECB: towards a reduction in monetary accomodation

The improvement of global economic conditions will allow the Fed and the ECB to reduce the degree of monetary accommodation, each with its own scale: continuation of the fed funds rate hike cycle for the Fed and reduction of asset purchases for the ECB. True, underlying inflation measures remain weak on both sides of the Atlantic but the evolution – even timid – of wages and the dissipation of temporary factors should reassure the two central banks : inflation will return to their targets. Other factors will prompt the Fed and the ECB to remove monetary policy accommodation: the sharp easing of financial conditions in the US for the Fed and the technical constraints attached to the QE implementation (in its current form) for the ECB. The ECB and the Fed will be very cautious in their communication and will telegraph their actions beforehand.

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