Why ECB stimulus is on track to end this year

Top European Central Bank officials expressed confidence at their last meeting that inflation is trending toward levels consistent with a strong economy—more confirmation that their €2.5-trillion (US$2.9 trillion) stimulus program will cease at year-end.

The written account of the Sept. 13 meeting, released Thursday, showed that the strength of Europe’s economic upswing and accompanying wage increases for workers “continued to support confidence in the sustained convergence of inflation” toward the bank’s goal of just under 2% annually.

The comments confirm the bank is on the way to ending the stimulus at year-end, although it has made clear that interest rates will not be increased before well into 2019. The ECB is gradually joining the U.S. Federal Reserve in withdrawing extraordinary stimulus measures used to support the global economy in the years following the Great Recession. The Fed has already ended its purchases and started raising interest rates.

A rise in interest rates is among the big concerns of investors who have been pushing down stock markets this week, as it could make loans more expensive and dent growth.

Inflation was 2.1% in September in the 19 countries that use the euro. The ECB officials were increasingly confident inflation will stay in line with its goal even after the monthly bond purchases to pump newly created money into the economy come to a scheduled end in December.

The bank officials cautioned that disruptions in global trade remain a potential weakness for the global economy. But they said that “adverse confidence effects on trade and investment arising from trade tensions had hitherto been limited,” according to the written account.

U.S. President Donald Trump has imposed new tariffs, or import taxes, on Chinese goods, and the Chinese have retaliated with tariffs of their own, raising fears that increasing protectionism will hold back global growth.

The account summarizes the discussions among officials responsible for setting monetary policy in the eurozone, but omits names and any votes taken.

The members of the bank’s governing council confirmed at the meeting an early timetable under which the purchases were reduced to €15 billion a month from €30 billion from October. The purchases are a way of injecting newly created money into the financial system with the aim of increasing inflation and making more credit available to businesses. Inflation had fallen to worrisome levels near or below zero in the wake of the Great Recession and the eurozone’s woes over high bank and government debt in some countries.

The ECB’s key interest rates remain at record lows of zero for lending to banks and −0.4% on deposits it takes from commercial banks.

The withdrawal of stimulus by central banks in the rich world could have wide-ranging effects on markets, as rising interest rates on safer investments such as bonds and bank deposits increases their attractiveness relative to stocks and other riskier assets.

David Mchugh, The Associated Press

David Mchugh is a reporter with The Associated Press, an American not-for-profit news agency headquartered in New York City and founded in 1846.