Euro-zone quantitative easing: Coming soon?

AS 2014 drew to a close, the European Central Bank (ECB) signalled an increasing readiness to pursue a big programme of quantitative easing (QE)—creating money to buy financial assets—in order to lift worryingly low inflation. Such an undertaking would require the purchase of sovereign bonds, an unpalatable policy in Germany, the country that in effect underwrites the single currency. Will the ECB nonetheless move from semaphore to action when its governing council meets on January 22nd?Mario Draghi, the ECB’s president, wants to crank up monetary policy because inflation remains uncomfortably lower than the bank’s goal of almost 2%. The headline rate stayed below 1% throughout 2014, reaching 0.3% in November, while the core rate, which strips out food and energy prices, was just 0.7% in late 2014 (see chart). The steep fall in oil prices will be a welcome tonic for the sickly euro-zone economy. But it may have a sting in the tail if people expect lower inflation as cheaper energy pushes the headline rate into negative territory, even if only temporarily.

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