Differences Between Fed and ECB Rate Approach

Includes: ADRU, FEZ, IEV
by: Jonathan Liss

Excerpt from our Wall Street Breakfast, a one-page summary of this morning's key market-moving and stock-moving stories:

Euro Zone May Take Break on Rates [Wall Street Journal]

Summary: After raising its benchmark interest rate in December to 3.5% as it has signalled it will, the European Central Bank may be ready to take the same approach as the Fed and freeze short-term interest rates. The ECB -- which oversees monetary policy for the 12 nations that share the euro -- has raised rates five times in 10 months, from a historic low of 2% in December to its current 3.25% -- a low-end-neutral rate that economists feel is still low enough to stimulate economic growth. There are some essential differences in how the Fed and ECB approach their respective economies. The Fed is attempting to keep the inflation rate low while simultaneously promoting economic growth, whereas the ECB's focus is on price stability. Says Ken Wattret, chief euro-zone economist at BNP Paribas in London, "The Fed decided to take rates back to a more neutral level, then do some fine-tuning. I don't think what the ECB's doing is all that different."
Related links: Goldman Sachs and JPMorgan Debate Economy, Fed Rate CutsBond Traders Now View the Fed as Unlikely to Cut RatesFed Officials Disagree, But Number of Hawks GrowingWhen Does the Fed Cut Rates, With the Dow This High?ECB Raises Rates, Dollar Doesn't Weaken
Potentially impacted stocks and ETFs: BLDRS Europe 100 ADR (NASDAQ:ADRU), streetTRACKS Dow Jones EURO STOXX 50 (NYSEARCA:FEZ), iShares S&P Europe 350 (NYSEARCA:IEV)

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