Fed will weigh up ECB's stimulus push as it readies rates message

Fri Oct 23, 2015 1:21pm EDT
 
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By William Schomberg

LONDON (Reuters) - The European Central Bank's signal that more stimulus is coming for Europe's economy could complicate the U.S. Federal Reserve's own message this week about when it might move in the opposite direction.

ECB President Mario Draghi caused the dollar to jump against the euro on Thursday when he said the ECB was studying new ways to fight off deflation and spur growth that may be announced as soon as December.

The Fed was already treading cautiously about whether it would begin raising U.S. interest rates in December.

"The ECB's move increases the probability of the Fed thinking twice about it," said Marco Valli, the chief euro zone economist at UniCredit in Milan.

"They will want to give the impression that they remain on track to raise rates at the end of the year," Valli said. "But obviously, after the ECB played tough, they will seek to avoid giving the impression that they are pre-committed."

Seven years after the Fed cut rates to nearly zero to fight off the effects of the financial crisis, rich and developing countries around the world are waiting for it to reverse course.

Figures due on Thursday, a day after the Fed's statement, are likely to show U.S. economic growth slowed to an annualized 1.7 percent in the third quarter, according to a Reuters poll of economists, down from 3.9 percent in the second quarter as a weaker global economy took its toll.

But assuming the U.S. Congress strikes another last-minute deal before a Nov. 3 deadline to avoid defaulting on its debt, growth in the United States is expected to pick up toward the end of the year and remain strong in 2016.   Continued...

 
A Federal Reserve police officer keeps watch while posted outside the Federal Reserve headquarters in Washington September 16, 2015. REUTERS/Kevin Lamarque