TWO of the world’s biggest central banks are likely to find themselves with a bigger policy gap by the end of the coming fortnight

    The European Central Bank (ECB) this Thursday will resist calls to start tightening policy against surging inflation, but robust U.S. jobs data Friday could seal the case for another Federal Reserve hike the week after.

    So, let’s say minus 0.4 percent rates in Europe and more than 0.75 percent in Washington.

    With just weeks to go before contentious French and Dutch elections, the ECB will be keen not to rock the boat, so it is likely to give just a token nod to robust growth figures, steering clear of any policy hint that may give emerging populist movements ammunition.

    A Reuters poll showed unanimity for no change. But the balancing act may be more difficult than it looks.

    With growth on its best run since before the financial crisis and inflation peeking just above the ECB’s target, calls are mounting, particularly in Germany, for the bank to scale back its 2.3-trillion-euro (US$2.42 trillion) bond buying program and raise its negative interest rates.

    Doves hold a comfortable majority among the policymakers, however, so any shift will come at the margins. In practice that could mean increased inflation forecasts, letting an ultra-cheap lending program to banks expire as scheduled, and dropping a reference to the risk that growth may disappoint.

    Still, ECB President Mario Draghi will probably avoid any discussion about winding down asset buys, even pushing back on calls by some rate setters to tweak the ECB’s guidance, giving up its reference to further rate cuts, a possibility markets have already priced out.

    “If the French presidential election also passes without turbulence, and growth and inflation data remain solid, the ECB might turn more hawkish in its meeting June 8,” said Reinhard Cluse, economist at investment bank UBS. “This would then leave the meeting on July 20 for preparing the markets for the tapering [off asset-buying] Sept. 7.”

    For now though, Draghi will stick to his line that the inflation surge is temporary, growth is fragile and political risks clouds the outlook, requiring stimulus, a Reuters poll of analysts showed.

    Having tightened policy in 2011 just months before the eurozone debt crisis started spiraling out of control, the ECB will be desperate not to move too early, even if it risks being called out by some for moving too late.

    The Fed, meanwhile, must deal with what Draghi dubbed a high-class problem: solid growth, full employment and returning inflation.

    Non-farm payrolls, due Friday, are expected to show an increase of 186,000 jobs, probably enough to push the Fed to move. Unemployment benefits already fell to near a 44-year low late last month, indicating further tightening of the labor market.

    Indeed, markets have now almost fully priced in a hike in March, the third since rates bottomed out at the height of the crisis, and two more increases could still come before the end of the year.

    Robust jobs growth threatens to overheat the labor market, just as inflation is heading higher, with the Fed’s preferred measure now in the upper end of the range central bank officials in December estimated would be reached this year.

    Manufacturing growth is also firming, offsetting relatively weak consumer demand, good enough for even the most dovish Fed officials to argue for a hike sooner rather than later.

    Soothing global growth fears, meanwhile, China is expected to report another set of strong figures for both exports and imports, indicating that even if overall growth is slowing and debt is rising fast, the slowdown remains under control, mitigating the risk for emerging market economies. (SD-Agencies)