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The bull and bear in front of the stock market are painted green in Frankfurt, Germany, on Monday, June 3, 2019. They were painted on the occasion of the next week's "Green Sauce", when Frankfort celebrates his most popular dish. (Photo AP / Michael Probst)
FRANKFURT, Germany – The European Central Bank is reflecting on the problem of growth and low inflation, just two days after the US Federal Reserve opened the door to greater recovery.
Speculation that the bank could act to revive the economy has increased as market expectations for inflation have subsided, a sign of growing pessimism about the economy. of the economy.
Both the ECB and the Fed have suspended their efforts to withdraw stimulus measures set up following the Great Recession and the global financial crisis. Concerns about the global economy now suggest that the Fed could cut interest rates in its next phase.
President Jerome Powell said on Tuesday that the Fed was ready to react if it decided that the Trump administration's trade disputes are threatening the US economy. Investors interpreted it as a sign that the Fed was likely to cut interest rates later this year.
Markets and analysts are waiting to see what the Governing Council of the ECB will decide Thursday at a meeting in Vilnius, Lithuania, where the bank, headquartered in Frankfurt, holds its annual road meeting. President Mario Draghi will hold a press conference after the meeting.
The bank could notably indicate that it offers very favorable interest rates as part of a series of long-term and cheap loans already announced.
The purpose of the credit is to replace the first cheap money injections that will expire in the coming months, so that the banks do not tighten the credit to the companies. Some analysts believe that the ECB could impose a negative interest rate on credit under certain conditions, which means that banks would be paid to take the money.
The ECB could then make lending conditional on companies by forcing banks to obtain cheap money, which will stimulate more stimulus and credit in the economy.
The central bank could also postpone the earliest date for an increase in interest rates. Currently, the bank has promised to keep rates unchanged until at least the end of the year.
The ECB reference rate for bank loans is nil. On top of that, he imposed a negative interest rate of 0.4% on bank deposits, which makes them lend money.
Like the United States, the 19 eurozone countries are experiencing economic growth. The euro area grew by 0.4% in the first quarter. But the indicators have been mixed recently.
Businesses have become more cautious because they fear the trade dispute between the US and China will escalate into conflict and lead to more tariffs or import taxes, with US President Donald Trump seeking to reduce China's trade surplus with the United States
At the same time, inflation has always been below the ECB's target of just under 2%, despite a massive stimulus program under which the central bank has bought for EUR 2.6 trillion bonds from EUR 2.5 trillion from March 2015 until the end of last year.
Central bank policies affect corporate finances and personal finances throughout the economy. Measures to reduce rates and increase credit availability theoretically make borrowing easier and less costly for businesses, homebuyers and consumers. Central bank policies can also have a strong influence on asset prices. Low savings rates can make investments more risky, such as equities, relatively more attractive. The broad US stock market index Standard & Poor's jumped 2% following comments by Powell.
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