Farewell to Easy European Money

Earlier this year, sky-high inflation forced the Federal Reserve to slam on the monetary policy brakes. The same now appears to be happening in Europe, where the European Central Bank (ECB) is being forced to reverse course to contend with inflation at the highest level since the Euro’s 1999 launch.

The ECB’s monetary policy shift does not bode well for global financial markets. In much the same way as the Fed’s more hawkish monetary policy stance has led to a sharp correction in the US equity and credit markets, the ECB’s policy shift now risks reigniting the Eurozone sovereign debt crisis.

It would be a gross understatement to say that financial markets have not received well the Fed’s announcement that it plans to raise interest rates in 50-basis-point steps at its next two meetings. Nor have they warmed to the idea that soon the Fed will be removing as much as $95 billion a month in liquidity from the markets by not rolling over the bonds it holds at maturity.

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Πηγή: aei.org