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Euro-zone monetary policy may be among the world’s most dovish, but the currency bloc is far ahead of the U.S. in phasing out pandemic stimulus, according to UniCredit’s chief European economist.

The European Central Bank is set to restore lending conditions, interest rates and the pace of bond-buying to pre-crisis levels in October -- at least a year earlier than the Federal Reserve, Marco Valli, who also heads global research for UniCredit, said in a weekend report to clients.

That’s despite ECB President Christine Lagarde repeatedly saying a rate increase is unlikely in 2022 and Fed Chair Jerome Powell gearing up for three hikes.

For Valli, the key is that ECB policy was much looser than elsewhere when it began responding to the coronavirus following years spent trying to revive inflation and repair damage from previous crises.

While it’s “probably correct” to consider it one of the most cautious central banks right now, “when the different starting points of monetary policy are taken into account, the ECB’s stance looks less dovish than generally thought,” he said.

Valli calls the mismatch “striking” in light of expectations for the U.S. economy to recover its pre-pandemic trend about a year earlier than Europe, and with American labor shortages more severe and already causing faster wage growth. What’s more, U.S. equities have outperformed and the euro is actually stronger than two years ago in trade-weighted terms.

Despite accelerating the exit from asset purchases and bringing forward rate increases, some economists reckon the Fed should do more to contain the fastest inflation in four decades.

“In 2022, we might see whether the Fed’s planned policy normalization is too slow, or the ECB simply overreacted to recent high inflation readings,” Valli said. “As a risk scenario to our baseline, the former appears more likely.”

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