ECB sticks to independent dovish stance despite hotter US inflation

Despite rising US inflation, the ECB maintains its independent dovish stance. ECB officials are reiterating their resolve to lower interest rates in June while downplaying worries about US inflation. This is the case even though the US Federal Reserve and the European Central Bank may have different monetary policies, as indicated by a stronger-than-expected US inflation report that raised concerns.

Insisting that they are “data-dependent, not Fed-dependent,” ECB officials highlight how the Eurozone’s economic circumstances are very different from the US’. This year, the Eurozone economy is predicted to expand moderately, and inflation will progressively approach the ECB’s 2% target. In comparison, the US is seeing rising inflation and comparatively robust economic growth.

At their upcoming meeting in June, a number of ECB council members voiced confidence in beginning to loosen policy. Surveys showing a slowing in wage growth and a sluggish rebound in the Eurozone economy supported this dovish position. The euro fell, and the yields on government bonds issued by the Eurozone decreased, as investors responded favourably.

Some economists are still worried, even though every ECB official contacted downplayed worries over transatlantic policy divergence. They fear that the ECB’s aggressive rate reduction may worsen inflationary pressures and damage the euro. Furthermore, there are worries that in the near future, inflation in the Eurozone may resemble that of the US.

Although the ECB is aware of the difficulties presented by the latest economic data, it continues to concentrate on its mission and the unique conditions of the Eurozone. Aware of the possible economic ramifications for the Eurozone, the bank will probably exercise caution in order to avoid adopting a too similar stance to that of the Fed.