Europe `Ahead' of Fed on Inflation, BlackRock's Fisher Says

Europe’s central bank will raise interest rates before the U.S. Federal Reserve, curbing the region’s growth prospects, said BlackRock Inc.’s Peter Fisher.

“They’re going to be a little more worried about inflation pass-through from commodity prices than the U.S.,” Fisher, 54, the head of fixed income at the world’s biggest money manager and a former U.S. Treasury undersecretary, said in an interview in Sydney today. “They’ll be ahead of the Fed.”

Even as Europe grapples with a sovereign debt crisis, inflation in the 17-nation euro region quickened to 2.3 percent in January, the fastest since October 2008, according to data published by the European Union’s statistics office yesterday. That contrasts with the U.S., where the inflation gauge watched by the Fed, which excludes food and energy costs, increased 0.7 percent in the 12 months through December, the smallest advance since records began in 1959.

European leaders have a “more modest” outlook on the level of expansion consistent with stable prices, said Fisher. “They don’t think they can grow the European economy at 2.5 percent to 3 percent without kicking off inflation.”

Economists are estimating expansion of 1.6 percent in the euro area this year and 3.2 percent in the U.S., according to Bloomberg surveys.

The European Central Bank has kept its benchmark interest rate at a record-low 1 percent since May 2009 even as growth picks up in Germany and other trade-surplus countries with smaller debt burdens. Its next interest rate decision is on March 3.

Inflation Focus

ECB governing council member Mario Draghi said on Feb. 26 that inflation pressures are forcing policy makers to focus more closely on the timing of future interest-rate increases.

The euro has gained 3.3 percent against the greenback this year amid prospects the ECB will precede the Fed in its tightening cycle. Those gains may stall, Fisher said, as higher asset prices and strengthening growth prospects in the U.S. support the nation’s currency.

The dollar above $1.4 per euro “feels pretty tight for most of Europe,” he said. “If QE2 is as successful over the next six months as it was over the last it’s very hard for me to think that’s dollar negative.”

New York Fed President William Dudley said yesterday in a speech in New York the “considerably brighter” economic outlook isn’t yet reason for the central bank to withdraw its record monetary stimulus.

Fed Chairman Ben S. Bernanke is scheduled to deliver a semiannual report on monetary policy today to the Senate Banking Committee and is due to testify to the House Financial Services Committee the following day.

“The Fed is going to look for the exit, but it doesn’t seem to me like they’re going to be in a hurry,” said Fisher. “The U.S. doesn’t have as much up-risk in the economy as I think people thought.”

To contact the reporters on this story: Sarah McDonald in Sydney at smcdonald23@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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