The European Central Bank will consider Federal Reserve-style quantitative easing “early next year,” ECB president Mario Draghi hinted Thursday.
The ECB announced no changes to its monetary policy Thursday after a meeting of its Governing Council in Frankfurt, Germany, but Draghi’s statements to the press afterward are likely to raise expectations that it will engage in large-scale purchases of sovereign debt to boost European growth.
Draghi and the ECB have embraced unconventional monetary policy in an attempt to rescue a stagnant European economy that risks the possibility of falling into a triple-dip recession and deflation.
Euro area inflation fell to 0.3 percent annually in November, well below the ECB’s 2 percent target. Unemployment remains at a sky-high 11.5 percent.
In some member countries, the numbers are far worse. Unemployment is above 13 percent in Draghi’s home country of Italy and nearly 25 percent in Spain.
The ECB has already taken a number of steps to easy monetary policy, including by cutting its short-term interest rate targets to near zero, and by promising to buy an unspecified number of private-sector bonds over the course of the next two years.
But as those measures have failed to reverse falling expectations for growth and inflation over the course of the year, investors and analysts have looked to the central bank to take the more aggressive step of large-scale purchases of government bonds.
Draghi suggested in a press conference following the announcement Thursday that the ECB’s 24-member board is moving closer toward quantitative easing, but it’s still a matter of debate.
“We have discussed various forms of QE, and more work is needed,” Draghi said.
In his statement, he said that the council “remains unanimous in commitment to use additional unconventional instruments within its mandate” in the face of too-low inflation. He added that unanimity would not be necessary to launch quantitative easing, and said, tongue-in-cheek, that the council had discussed the possibility of buying all kinds of assets other than gold.
Nevertheless, further economic developments could ward off the need for bond buys, he added. He specifically mentioned the roughly 30 percent drop in the price of oil since the summer, which he said was an “unambiguously positive” development for Europe.
Europe’s economy, as well as that of Japan, has been moving in the opposite direction of the U.S. economy.
The Federal Reserve finished a two-year quantitative easing program in October, the third round of large-scale bond purchases it launched since the 2008 financial crisis. Unlike Europe, the U.S. has not suffered a double-dip recession or a prolonged threat of deflation.
The Fed’s no. 2 official, Vice Chairman Stanley Fischer, suggested this week that the Fed’s use of quantitative easing would be appropriate for the ECB as well.
“The same arguments in favor of quantitative easing … that demonstrated their effectiveness for the U.S. economy are valid for Europe too. If the ECB moves in that direction, it will have positive effects,” Fischer told the Italian paper La Repubblica in an interview.
Fed officials in recent weeks have downplayed the risks that the U.S. faces in the economic struggles of Europe and Japan. International trade “is not the main driver of the United States economy,” Federal Reserve Bank of New York President William Dudley said Tuesday.
Both Dudley and Fischer suggested this week that if unemployment continues to fall and inflation strengthens toward the Fed’s 2 percent target, the Fed could raise interest rates around halfway through 2015. The Fed has held short-term interest rates near zero since late 2008.
