Is Trichet’s Optimism Justified?

Our next anniversary guest post is from the estimable Mark Thoma.

The Fed and the ECB have different economic outlooks for the U.S. and European economies. For instance, the Financial Times reports:

Fed and ECB diverge on economic outlook, by Chris Giles and Ralph Atkins, Financial Times: The Federal Reserve and the European Central Bank painted contrasting pictures of the US and European economies… Together, the statement by Jean-Claude Trichet, ECB president, and the speech by Mr Bernanke indicated that European interest rates were likely to rise while there was no urgency for further US rate rises.
Mr Bernanke gave an optimistic assessment of the US economy’s ability to continue rapid economic growth without triggering further inflationary pressures. … Across the Atlantic, Mr Trichet announced big upward revisions to the ECB’s inflation forecasts … and called for “strong vigilance” to defend price stability – code words used to signal an interest rate increase in early October. … Mr Trichet’s comments followed the unexpected strength of the eurozone recovery in the second quarter, and ECB fears about the impact on inflation
in 2007… Eurozone consumers’ fears about inflation increased in August to the highest level since the introduction of euro notes and coins in 2002…

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