Mark Holman (Vontobel AM) | The Fed’s QE programme of $80bn in Treasuries and $40bn of mortgage-backed securities (MBS) purchases per month is already being tapered with $10bn less in Treasuries and $5bn less in MBS as each month passes. In our opinion the Fed should have already finished tapering by now, but they have only just begun and at a very slow pace, suggesting it will take seven further policy meetings to complete.
Laura Becerra (Caixabank Research) | If we want to get a better understanding of monetary policy decision-making, we must pay close attention to changes in financial conditions. To do this, there is an important initial step: knowing how to measure them.
Javier García Arenas and Adrià Morron Salmeron (CaixaBank ) | The independence of central banks seems indisputable, even more so in these times of pandemic, in which they have increased their use of unconventional policies and provided coverage for the high funding needs of states. In this article we will explore the theory and empirical evidence supporting the importance for central banks to maintain their independence.
Central banks have once again received criticism for the support they have provided to markets-to-date and their role as inflation targeters. Analysts at AXA IM’s view is that much of this criticism is misplaced: They expect central banks to remain inflation targeters, even though seeing the immediate pandemic impact as likely disinflationary through 2022.
Alphavalue | The answer to this complex question is yes. Our analysts believe there is a limit to central bank intervention. This is not determined by economic or financial rules, but by politics. Ignoring that limit would violate democracy. The next question is: have some central banks already crossed the limit?
Frenzied rate cuts (more than a hundred worldwide) and liquidity injections by various central banks, amounting to more than $6 trillion, added to the fiscal stimuli of all kinds already committed for another $9 trillion. An unprecedented aid package that amounts to 19% of the world’s GDP in 2019. All aimed at trying to achieve a V-shaped recovery that will mitigate the effects (-5% of world GDP) of such an unexpected recession.
Degussa | Wherever you look: Prices for consumer goods, real estate, stocks and bonds are on the rise. That means that the purchasing power of money is on the decline. For if, say, stock prices go up, your money unit can buy fewer stocks. What it also means is: While people holding assets, whose prices increase, become “richer”, people holding money get “poorer”
Caixabank Research | The experience of the Riksbank highlights the doubts over negative interest rates: despite a worsening economic outlook for Sweden, it raised the interest rate from –0.25% to 0% in December and abandoned its policy of negative rates.
Unigestión | Whether it is called QE or not, buying bills (swapping reserves for short-term bonds), injecting liquidity into the market place and growing the balance sheet affects risky assets. Market conditioning (the Pavlovian effect) since the GFC is that stock markets cannot go down when the Fed is growing the balance sheet. Additionally, the Fed’s extremely aggressive response to the repo blowout in September is another signal to markets that it has a very low tolerance for market fluctuations.