Fed awaits European Central Bank move

London - ECB President Mario Draghi said the ECB was studying new ways to fight off deflation and spur growth.

The European Central Bank's signal that more stimulus is coming for Europe's economy could complicate the US Federal Reserve's own message this week about when it might move in the opposite direction.
ECB President Mario Draghi caused the dollar to jump against the euro on Thursday when he said the ECB was studying new ways to fight off deflation and spur growth that may be announced as soon as December. The Fed was already treading cautiously about whether it would begin raising US interest rates in December.
"The ECB's move increases the probability of the Fed thinking twice about it," said Marco Valli, the chief eurozone economist at UniCredit in Milan.
"They will want to give the impression that they remain on track to raise rates at the end of the year," Valli said. "But obviously, after the ECB played tough, they will seek to avoid giving the impression that they are pre-committed."
Seven years after the Fed cut rates to nearly zero to fight off the effects of the financial crisis, rich and developing countries around the world are waiting for it to reverse course. Figures due on Thursday, a day after the Fed's statement, are likely to show US economic growth slowed to an annualised 1.7 per cent in the third quarter, according to a Reuters poll of economists, down from 3.9 per cent in the second quarter as a weaker global economy took its toll.
But assuming the US Congress strikes another last-minute deal before a November 3 deadline to avoid defaulting on its debt, growth in the United States is expected to pick up toward the end of the year and remain strong in 2016.
Fed Chair Janet Yellen and other officials have said they expect a rate increase will be needed by the end of this year. But two Fed governors urged caution last week, and financial markets don't expect a move until next year. A first move had been widely expected in September. The Fed was put off then by the turmoil in China's stock markets as the Chinese economy slowed.
On Friday, China cut rates for the sixth time in less than a year, announced on Friday. That might help ease concern about its outlook.
But with the ECB considering measures such as a further cut in interest rates or ramping up its bond purchases, the Fed will have to consider the pros and cons of widening the divergence of monetary policy on the two sides of the Atlantic.