European Central Bank set to outdo Fed with half-point hike

FRANKFURT, Germany (AP) — The European Central Bank is set for another large interest rate increase to fight painfully high inflation even after the U.S. Federal Reserve slowed its pace, a divergence that underlines Europe's later start and could speed the euro's rebound from recent lows against the dollar.

ECB President Christine Lagarde has made clear that a rate hike of half a percentage point is in the offing at the bank's meeting Thursday “and possibly at the one after that, and possibly thereafter.”

The Bank of England also was expected to go big with a half-point hike Thursday, contrasting with the Fed's decision Wednesday to slow its pace to a quarter-point.

The ECB started raising rates in July, four months after the Fed did, and from lower levels — including below zero for one of its key benchmarks. That means Europe's bank may have further to go before it feels rates are high enough to cool off inflation — even though economic growth has slowed.

Officials said at their last meeting in December that rates will need to “rise significantly” to control inflation, which reached 8.5% in the 20 countries using the euro in January. That is well above the bank's target of 2% considered best for the economy.

Market watchers will focus on Lagarde's post-meeting news conference for any hints at how far the bank will go. Analysts say increases are likely at the next two meetings.

Inflation is slowing in both the U.S. and the eurozone but is still at levels that are unacceptable for central banks whose mandate is to keep price spikes under control.

The different pace of increases could have implications for the dollar, which has slid recently from 20-year highs against the euro as markets begin to assume the Fed is nearing peak rates while the ECB is raising them fast.

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