Implications for the Euro Area of Divergent Monetary Policy Stances by the FED and the ECB

Different economic conditions in the euro area and the US. The recovery in the euro area is progressing, albeit at a moderate pace, mainly supported by temporary factors (low oil prices, a weak euro and a very accommodative monetary stance). Labour market conditions continue to improve, but slowly, while inflation remains well below the European Central Bank (ECB) target. US recovery is stronger, it is accompanied by falling unemployment rates, higher potential growth and rising inflation expectations. Moreover, the US economy has so far avoided deflation risks which are still looming in the euro area.