The expected difference between ECB looseness and Fed tightness two years ahead stands near a 20-year extreme.
We have shown there is no difference between economic growth, inflation, or inflation expectations in the euro area and the U.S. on an apples for apples comparison. And in sharp contrast to the U.S., the percentage of the euro area population in employment is at an all-time high.
ECB President Draghi points out that “the risks surrounding euro area growth relate predominantly to global factors”. If these global risks do materialize, it would prevent both the ECB and the Fed hiking rates through 2018. But if these global risks do not materialize, allowing the Fed to continue hiking through 2018, is it really conceivable that the ECB just sits pat? Our European strategists think not.