Although they are managing the economies that are at different points within the global business cycle, the Fed and the ECB seem to share the same views of what needs to be done to strengthen demand, output and employment in Europe and in the United States. Both central banks are maintaining a degree of monetary accommodation reflecting the cyclical positions they are currently facing.
The Fed is ahead of the game. Having steadied the economy along a path slightly above its long-term potential, the Fed is now gradually withdrawing excess liquidity without any noticeably adverse effects on money and capital market conditions. In the U.S., bank lending to consumers has accelerated in recent months to an annual rate of nearly 7 percent, while the nonbank consumer lending -- which accounts for about two-thirds of the total lending to American households -- was exploding in May at an annual rate of 10.6 percent.
The ECB, by contrast, is still struggling to keep the euro area economy afloat. Bank lending to the area's private sector increased only 1.3 percent in the year to May. Over the same period, the annual growth rates of loans to households and nonfinancial businesses increased 1.6 percent and 1.4 percent, respectively. That is low, way too low, even though these numbers are showing a string of steady monthly increases.
But just as the Europe's central bankers were beginning to see patches of the blue summer skies, they are caught up in the headwinds of terrorist attacks that are negatively affecting an already fragile consumer and business sentiment.
The security threats hanging over Europe, and a wave of unfolding terrorist attacks, are another big difference in the economic environment where the Fed and the ECB have to deploy their policy instruments in the months ahead.
It is striking, for example, to see that, during its convention in Cleveland last week, the Republican Party fully acknowledged the threat of terrorist violence to the "civilized world," and decided to run its presidential campaign on the "law and order" platform, while Europe's diffident political elites show no similar resolve.