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| European Central Bank Holds Back, Even as Inflation Quickens | |
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| FRANKFURT — The European Central Bank may have held fire at its regular monetary policy session on Thursday, but the meeting could nevertheless represent a turning point. | FRANKFURT — The European Central Bank may have held fire at its regular monetary policy session on Thursday, but the meeting could nevertheless represent a turning point. |
| Though the central bank kept interest rates steady and did not retreat from the aggressive monetary stimulus it began more than a decade ago, many economists still expect it to taper its support for the eurozone economy over time as inflation accelerates. As the bank pulls back, the path could be bumpy, with political complications at home and abroad, including whether the Federal Reserve in the United States decides to raise lending rates next week. | Though the central bank kept interest rates steady and did not retreat from the aggressive monetary stimulus it began more than a decade ago, many economists still expect it to taper its support for the eurozone economy over time as inflation accelerates. As the bank pulls back, the path could be bumpy, with political complications at home and abroad, including whether the Federal Reserve in the United States decides to raise lending rates next week. |
| Mario Draghi, the president of the European bank, will answer questions at a news conference beginning at 2:30 p.m. in Frankfurt. Here is what to watch for: | Mario Draghi, the president of the European bank, will answer questions at a news conference beginning at 2:30 p.m. in Frankfurt. Here is what to watch for: |
| Since the first stirrings of a global financial crisis in 2006, the European Central Bank has deployed a broad range of tools to prevent economic collapse. But a recent increase in consumer prices is putting pressure on the central bankers to begin a slow return to normal. | Since the first stirrings of a global financial crisis in 2006, the European Central Bank has deployed a broad range of tools to prevent economic collapse. But a recent increase in consumer prices is putting pressure on the central bankers to begin a slow return to normal. |
| The bank’s mandate requires it to focus on inflation above all else. So even though the unemployment rate in the eurozone is double that of the United States, there is pressure from Germany and other countries for the European Central Bank to stop inflation. | The bank’s mandate requires it to focus on inflation above all else. So even though the unemployment rate in the eurozone is double that of the United States, there is pressure from Germany and other countries for the European Central Bank to stop inflation. |
| The United States is applying additional pressure. The longer the European Central Bank waits, the more out of sync it will be with the Fed. | The United States is applying additional pressure. The longer the European Central Bank waits, the more out of sync it will be with the Fed. |
| Economists and analysts will be listening closely for any hints about the bank’s thinking. | Economists and analysts will be listening closely for any hints about the bank’s thinking. |
| It is likely that the mood on the bank’s policy setting panel has become more tense in recent months. In Germany, soaring real estate prices in cities like Frankfurt have stoked fears of inflation and led to calls for the bank to dial back the stimulus. | It is likely that the mood on the bank’s policy setting panel has become more tense in recent months. In Germany, soaring real estate prices in cities like Frankfurt have stoked fears of inflation and led to calls for the bank to dial back the stimulus. |
| But countries like Italy, Portugal and Greece are still suffering economically and are eager for the stimulus to continue. In addition, the eurozone’s stability is threatened by Britain’s vote to leave the European Union and the rise of populist movements in France, Germany and other countries. | But countries like Italy, Portugal and Greece are still suffering economically and are eager for the stimulus to continue. In addition, the eurozone’s stability is threatened by Britain’s vote to leave the European Union and the rise of populist movements in France, Germany and other countries. |
| A majority of the governing council is likely to remain in favor of keeping the stimulus flowing. But conservative members like Jens Weidmann, president of the German Bundesbank, have probably already begun pushing more aggressively for a shift in policy. | A majority of the governing council is likely to remain in favor of keeping the stimulus flowing. But conservative members like Jens Weidmann, president of the German Bundesbank, have probably already begun pushing more aggressively for a shift in policy. |
| Any change in the central bank’s main benchmark interest rate, which is currently zero, is probably years away. | Any change in the central bank’s main benchmark interest rate, which is currently zero, is probably years away. |
| So the big question is when will the central bank start reducing its purchases of government and corporate bonds, a type of stimulus. On Thursday, it reiterated its plan to extend the purchases through the end of the year, but repeated its plan to reduce the size of the bond buying starting in April. When the program was announced in December, many economists interpreted that decision as a form of what is known as tapering. | So the big question is when will the central bank start reducing its purchases of government and corporate bonds, a type of stimulus. On Thursday, it reiterated its plan to extend the purchases through the end of the year, but repeated its plan to reduce the size of the bond buying starting in April. When the program was announced in December, many economists interpreted that decision as a form of what is known as tapering. |
| Mr. Draghi insisted at the time that no such turning point had been reached. Any change in his tone Thursday would shock financial markets. | Mr. Draghi insisted at the time that no such turning point had been reached. Any change in his tone Thursday would shock financial markets. |