The trend in inflation is confusing those in charge of monetary policy. After a significant uptick in the last part of 2017, it has really stagnated, in stark contrast with the growing dynamism of the economy.
There’s an idea circulating amongst the central banks or, more accurately, amongst pressure groups in the central banks. The crux of this idea is: “the central banks should normalise interest rates”.
In her last press conference as Fed Chair, Janet Yellen showed no visible signs of emotion or resentfulness, taking her wholly unjustified dismissal with notable fortitude and good spirits. For all her weaknesses, both observers and markets will miss her unbiased attitude, conscientious dedication and economic mastery.
As expected by markets, the ECB announced that it will continue buying bonds in 2018, albeit at a reduced pace of monthly €30bn for another nine months until September 2018.
The central banks are still powerful. They can make the financial markets rise or plunge them into the doldrums. But the CBs need to scrutinise the financial system and its systemic risks more closely.
The non-banking sector in Europe currently accounts for 54% of total assets versus 42% in 2008. But interestingly, it’s in Germany and Spain, amongst the big countries, where banks maintain their weighting in absolute terms and in relation to their products.
J.L. M. Campuzano (Spanish Banking Association) | The global central banks are putting their plans for monetary normalisation on the table. But they also recognise that inflation risks are contained in the short-term. That means they have a margin of time to proceed with monetary normalisation in a cautious and patient way.
The European Central Bank (ECB)’s non-conventional measures contributed 1,7 percentage points to Spain’s real GDP growth between 2014 and 2016, while also helping to cut the public deficit by 1,9 percentage points over the same period.
J.L.M. Campuzano (Spanish Banking Association) | The increase in the size of the central banks’ balance sheet has without doubt been one of the untraditional measures of the financial crisis. But the president of the ECB has anticipated that probably at its next meeting in October a scheme will be worked out to progressively reduce the asset buying programme.
Ever since December last year, when it reached its low point, almost at parity with the dollar, the euro has not stopped rising. And the European economy is doing much better than that of the US.