Europe, Fed moves show global shift away from cheap money
RIGA, Latvia (AP) — Two of the globe's most powerful central banks are gradually withdrawing the easy-money policies that helped repair the damage wrought by the Great Recession and push stock markets to record highs.
It's a sign of confidence in the economy, but with uncertain consequences for consumers and businesses.
As growth picks up in the U.S. and Europe and more people finding jobs, the European Central Bank and the U.S. Federal Reserve are deeming it unnecessary to support the economy with policies created in darker days of financial uncertainty.
The ECB today said it would phase out by the end of this year its bond-buying stimulus for the 19 countries that use the euro. It had deployed the program in 2015 to save the region from the risk of falling prices and growth, and as Greece's debt crisis raised questions about the euro's future.
The move came less than a day after the U.S. Federal Reserve raised interest rates for the second time this year on Wednesday, reversing rate cuts it started making almost 10 years ago during the financial crisis.
"We are in an altogether different world to only a couple of years ago," said Patrick O'Donnell, senior investments manager at Aberdeen Standard Investments.
The central bank moves, he said, are "another step on the way to removing the extraordinary global monetary stimulus over the last decade."
The ECB's bond purchases were a way of pushing newly created money into the economy. That sought to lower borrowing rates and improve growth and inflation.
The ECB wants inflation at just under 2 percent, and the last figures show it at 1.9 percent – technically in line with the goal, but the ECB must also be sure inflation will stay high when stimulus is removed.