Arthur J. Villasanta – Fourth Estate Contributor
Frankfurt, Germany (4E) – On December 31, the European Central Bank (ECB) will formally end its almost four-year old quantitative easing (QE) program that prevented the euro zone economy from succumbing to its own version of the U.S. Great Recession of 2008.
ECB will stop expanding the multi-trillion Euro asset purchasing program, and will instead switch to reinvesting cash from maturing bonds to purchase additional debt. These purchases should keep borrowing costs on the low-end until 2021.
The ECB Governing Council confirmed that bond purchases will plunge from €15 billion a month to zero by the end of the year. It also left benchmark interest rates unchanged.
Introduced in March 2015, ECB’s QE program saw the bank buy more than €2.6 trillion ($2.9 trillion) in a successful bid to prevent the bloc’s banking system from unraveling. The QE measures are widely credited with helping revive the 19-member currency bloc after a double-dip recession and the holdover effects of the European debt crisis.
“With the most prominent crisis-fighting measure of the ECB now almost back in the toolbox, the big question is, what will be next?” asked Carsten Brzeski, chief economist at ING. “It seems as if the ECB wants to keep as many cards as possible close to its chest,” Brzeski said.
The timing of the ECB’s move, however, is contentious. Political developments in the United Kingdom over Brexit; Italy over excessive government spending and France over street violence seems to question the wisdom of ending QE by year-end.
The ECB meeting comes a week ahead of the U.S. Federal Reserve’s December meeting where it is expected to raise interest rates one-quarter point, its last for the year. Slowing growth in the U.S. and worldwide, due partly to Trump’s trade war, has some economists expecting the Fed to forego the next quarter-point rate hike in March.
The U.S. economy is showing clear signs of slowing down while its three equities markets have been wracked by extreme volatility linked to Trump’s trade war for the past two months.
Article – All Rights Reserved.
Provided by FeedSyndicate