Morning Must-Read: Greg Ip: How Europe’s Easy Monetary Policy Crossed the Atlantic

Greg Ip: How Europe’s Easy Monetary Policy Crossed the Atlantic: “As the dovish implications of the Fed’s downgraded forecasts for growth, inflation and interest rates sank  in, the euro rocketed higher…

…ending the day at $1.09…. The ECB’s QE has often been portrayed as currency war…. The term… is misleading. When one country’s currency falls because of easy monetary policy, its trading partners often ease as well to limit the damage of an appreciating currency. The net result is a tit-for-tat monetary expansion that boosts demand in everyone’s economy…. Denmark and Switzerland… Sweden… Thailand and Korea…. Central banks always seek to set the overall level of financial conditions which are a combination of short and long-term interest rates, equity prices and currencies, but they don’t get to choose the contribution of each. Faced with a stronger currency, the natural response is to lower interest rates in hopes of achieving the same economic goals with a different mix of instruments. Don’t call it a currency war. Call it textbook economics.

March 19, 2015

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