Mission not accomplished at central banks
U.S. and Japanese monetary policy does not always move hand in glove, but meetings of the countries’ respective central banks in the next few days are likely to spell out the same thing — that the job of economic recovery is by no means over.
It is almost a dead cert that the Federal Reserve will keep interest rates where they are and a high probability that it will renew its view that we can expect an “extended period” of “exceptionally low” rates. It is likely to stick to its plan to end purchases of around $1.7 trillion in assets. But it could well leave the door open for a renewal of purchases at a later date should economic expansion fall back.
The message: Mission not yet accomplished.
The Bank of Japan may prove even more dovish. It is under pressure to get even looser than it already is, most likely by increasing funds offered under its lending operation. This is partly because of weakening price trends and worse fourth quarter growth than expected.
The message: Mission even less accomplished.
A third confirmation is likely to come from the minutes of the Bank of England’s last meeting. expected to show unanimous support for keeping interest rates at their rock bottom level in the face of fragile economic growth.
As a result of this kind of thinking, there are increasing noises from some investors about the danger of the global economy slipping back into recession and equity markets revisiting the lows of March 2009.
True, most of those holding such opinion come from hedge funds and are people paid to look for outside risks to play. But there is no longer a consensus that all is well.
The central banks — implicitly — will be underlining this.