Why the ECB watches the Fed.

• Position: OFF THE NEWS - European Central Bank - Brief article

Following European Central Bank (ECB) policy closely these days is no easy task. Some policymakers seem fixated on controlling the monetary aggregates and have argued for higher short term interest rates to further sop up an oversupply of liquidity. Others have suggested that because high energy prices produce higher headline inflation, which has a way of seeping into the system and producing upward pressure on core inflation, the ECB should further raise rates. Others suggest that the central bank should further raise short-term rates as means of sending labor a message to back off excessive wage demands.

But at the end of the day, when all is said and done, what one variable drives ECB policy...