The European Central Bank cut its key interest rate and launched a sweeping package of bond purchases Thursday that lays the ground work for what is likely to be a long period of ultraloose monetary policy, jolting European financial markets and triggering an immediate response from President Trump.
….In a tweet, Mr. Trump said the ECB was “trying, and succeeding, in depreciating the Euro against the VERY strong Dollar, hurting U.S. exports.”
The ECB said that it wouldn’t raise interest rates “until it has seen the inflation outlook robustly converge” with its target of just below 2%. That is, they consider inflation too low and won’t raise rates until it has risen to 2 percent and stayed there a while. As you can see, inflation in Europe is considerably lower than it is in the US and is headed in the wrong direction:
Inflation in the eurozone area was only barely above 1.0 percent in July and shows no signs of turning around. This is why the ECB is getting kind of desperate.
Of course, Trump does have an alternative that the ECB doesn’t: he can spend money. All he has to do is convince Republicans to pass a big stimulus bill, which would probably accomplish more than any kind of rate cut or quantitative easing from the Fed. If it were directed toward subsidies for solar panels or a middle-class child care tax credit or something like that, he could even get Democrats on board. Unfortunately, Republicans would refuse, and that means Trump would have no one left to blame except his own party. Sad.
