LONDON (Reuters Breakingviews) - What’s good for the goose is supposed to be good for the gander. Not in central banking. Inflation has slowed in the United States and the euro zone and looks likely to subside further. That’s a boon for Federal Reserve boss Jerome Powell but a bane for European Central Bank President Mario Draghi.
The U.S. personal consumption expenditures price index rose 1.8 percent from a year earlier in November, the most recent data. October’s reading was 2 percent, bang in line with the Fed’s target. The euro zone annual inflation rate, which the ECB aims to keep just below 2 percent, has also fallen, to 1.4 percent in January from 1.6 percent a month earlier. Online, real-time price data gathered by PriceStats suggest inflation will grow even tamer.
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That would suit Powell. He signalled in January that the U.S. economic outlook was less certain, effectively putting interest-rate rises on hold for now. Slowing inflation gives the Fed extra room to wait and see. But the same phenomenon will be more of a headache for Draghi.
The ECB ended asset purchases, also known as quantitative easing, in December, four years after the Fed. European market-watchers expect Draghi will step down on Oct. 31 without having raised rates during his eight-year term. That’s because euro zone growth slowed at the end of last year, with Italy, the bloc’s third-biggest economy, tipping into recession in the fourth quarter. A swift rebound looks unlikely.
The European Commission on Thursday predicted euro zone growth would slow to 1.3 percent in 2019 from 1.9 percent in 2018, a downgrade from its November forecast of growth continuing at the same pace. That could all pile pressure on the ECB to act to ease conditions at a time when, unlike the Fed, it hasn’t yet done any tightening.
Banks already have to pay the ECB to deposit cash, with an interest rate of minus 0.4 percent. Making the cost even higher would do more damage to the lenders on whom policymakers rely to provide credit to the economy. Meanwhile, only in dire circumstances would the ECB resume asset purchases. Powell’s life, complete with barbs from U.S. President Donald Trump, is not always a bed of roses. But Draghi’s problems are much thornier.