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ECB takes a different view than the Fed

John Dimsdale Jan 23, 2008
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ECB takes a different view than the Fed

John Dimsdale Jan 23, 2008
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KAI RYSSDAL: It’s often said that Ben Bernanke is the most powerful economist on the planet. We’re as guilty of that as anybody else, but the global economy’s a pretty big place. Way too big for one guy to handle all by himself. Ideally everybody who gets to make the big decisions agrees on what needs to be done, but early this morning it became clear there’s a disconnect, that the Fed doesn’t see things the same way as everybody else does.

Yesterday’s big rate cut put pressure on the European Central Bank to follow suit, but Marketplace’s John Dimsdale reports the ECB is looking at a very different set of economic circumstances.


JOHN DIMSDALE: Europeans are enjoying a growing economy, and figure they can weather the current financial turmoil better than the U.S., but tumbling global stock prices have traders there clamoring for interest rate cuts. So far European central bankers show no signs of caving, pointing to inflation that’s running around 3 percent per year. But the U.S. too is battling inflation, and University of South Carolina business professor Steven Mann says that didn’t prevent the Fed from slashing interest rates yesterday.

STEVEN MANN: It leads one to believe the Federal Reserve here in the United States is more vulnerable to political pressures than their counterparts in Europe.

But in addition to overseeing a more robust economy, the ECB also has a slightly different goal than the Fed, says Ted Truman at the Peterson Institute for International Economics.

TED TRUMAN: Their mandate is to worry about price stability only. The Federal Reserve mandate is to worry about full employment and price stability. It’s fair to say that the Europeans do worry about full employment, they just don’t say they do.

Still, Peter Kenen with the Council on Foreign Relations, says the ECB may be too focused on fighting inflation.

PETER KENEN: I am a bit concerned the ECB could be getting behind the curve. They continue to say that the European economy is strong, but there are signs of weakening.

Kenen says the ECB, like the Federal Reserve, is in a tough spot. It must fight inflation, but also give people and companies incentives to borrow and spend.

In Washington, I’m John Dimsdale for Marketplace.

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