SINTRA, Portugal -- A global shift back to easy-money policies reminiscent of the last financial crisis gathered force Tuesday after the European Central Bank signaled it was poised to step up its stimulus to the eurozone economy.
"Additional stimulus will be required" unless the stress from international tensions and the trade war eases, Mario Draghi, the central bank's president, told an audience of economists. He added that the bank was prepared to use all the monetary policy weapons at its disposal, including de facto money printing, to forestall a recession.
It was Draghi's strongest indication yet of concern about the global economy, and it came as the Federal Reserve's policy-making committee began meeting in Washington amid expectations it could also resume cutting interest rates.
Draghi's remarks brought a rebuke from President Donald Trump, who accused the central bank president of manipulating currency rates.
"They have been getting away with this for years, along with China and others," the president said on Twitter.
Only a few months ago, central banks were putting the brakes on their fast-growing economies or, in the European Central Bank's case, unwinding emergency measures put in place during the last crisis. But now, the policymakers who manage monetary policy are reversing direction in the face of new threats to growth, including Trump's trade war, escalating tension between the United States and Iran, and rising fear of recession.
The euro declined sharply against the dollar after Draghi's speech. But Draghi denied Trump's accusation that he was deliberately trying to give European companies an unfair advantage. A weaker euro tends to make European cars, machine tools or wine less expensive for customers paying in dollars.
"We don't target the exchange rate," Draghi said to applause from the economists and central bankers gathered at a golf resort in Portugal for the European Central Bank's annual Forum on Central Banking.
Trump's contention that the European Central Bank's actions are unfair, and his consistent belief that the Federal Reserve should lower rates and weaken the dollar, underlines his views that other countries are taking advantage of the U.S. on trade.
The Fed's policymakers, whose meeting ends today, are expected to leave rates unchanged, but many economists predict they will signal that they are willing to cut rates soon if a slowing global economy and escalating trade tensions threaten the outlook for U.S. growth.
Trump has long fixated on what the euro and China's currency are doing relative to the U.S. dollar -- and how monetary policy at home and abroad fits in. He tweeted about the lack of a level playing field last year, and his adviser Peter Navarro made similar attacks on Germany for currency manipulation before that. Draghi has defended euro area monetary policy, saying that it reacts to economic fundamentals.
The Fed and other global central banks guide their domestic economies by moving short-term interest rates and by buying bonds. Those moves cause their national currencies to adjust, but policymakers rarely explicitly target such moves for fear of being labeled currency manipulators.
Such an approach is critical in a globalized economy with freely floating currencies. It is intended to allow major nations to keep economic activity operating at an even keel, without resulting in currency battles that become a race to the bottom and risk ignoring other monetary policy goals, like controlling inflation.
Draghi had signaled earlier this month that the European Central Bank was becoming increasingly willing to revive stimulus measures used to combat a debt crisis that began in 2010. But in a panel discussion at the central banking forum Tuesday, he made it clear that his statements during a speech earlier in the day signaled a significant shift in response to a climate of pervasive economic uncertainty.
Draghi had signaled previously that the central bank would only act if the economic situation worsened. Now he's signaling that the central bank will definitely act unless the situation gets better.
Draghi's eight-year term will end in October, and later this week European leaders will meet in Brussels to discuss choosing his successor.
By effectively committing the central bank to action as soon as its next monetary policy meeting on July 25, Draghi may have been reassuring financial markets that economic stimulus will linger long after he leaves office.
Business on 06/19/2019