A strategically oriented central bankers meeting would however take any considerations on the economic development and any Trippelschrittchen with key interest rates better stand to face if they are gathered capacity would make even thought about how it lowest to the usefulness of a policy to negative interest rates and a flood of money from aggregated more than 12 Bill. Dollar purchases since of 2009. May well be possible that such measures are sometimes justified in acute shock situation. But an emergency medicine is not for every day, its effectiveness can be quickly and runs often reversed.
Ahead of “Jackson Hole” senior Fed officials have done their longer-term view of the monetary policy and economic development known. James Bullard, head of the Fed of St. Louis, may be no longer-term outlook more. At best, we will retain the current weak environment regarding real output, employment and inflation, he says and predicts therefore merely another small rate hike between now and 2019.
John Williams, head of the Fed of San Francisco, sees the natural interest rate, which neither expansionary nor contractionary effect at an economy on potential growth in the coming years as very low on. In the US, he would be around zero in the euro zone and in Japan it was negative. A decade ago, he was still in the developed economies at 2.5% to 3.5%. Responsible for this are a number of secular factors, among others in the field of demography, a lower trend productivity growth and a global global saving glut. In such an environment, the conventional monetary policy has little design options, he says. Therefore increasingly need unconventional means are used, such as the purchase of assets and negative interest rates. In addition, higher targets for inflation and nominal growth would have to be set, combined with an increase of long-term growth potential through targeted investments in infrastructure, education and research. In addition, the fiscal and tax policy should be geared more countercyclical, so Williams.
There are signs that the economic, monetary and financial scene in the direction pointed out by Williams moved. In particular, both US presidential candidates in their election programs before significant infrastructure spending. In Japan, the government announced fiscal stimulus and flirting simultaneously with the thought of helicopter money. The ECB is not tired, amass bonds worth monthly 60 to 80 billion euros in its QE program.
If the community of central bankers sooner or later converts the thoughts of Williams in the act, it follows that the interest rates and yields will remain over the entire maturity spectrum still several years ultra-low to negative. It also follows that the already high public debt will continue to rise. And ultimately should lead the whole event is that the respective central banks buy up at least the new government borrowing, just as in Japan for several years already happening.
In the context of low to negative bond yields shares under return point are further searched. This has driven their evaluation high. The real bubble is, however, in global bonds. Around one third pays already negative. The global volume of interest rate derivatives has increased tenfold in the past ten years and is currently at 550 Bill. Dollar. When the line of monetary policy described interspersed, is likely to continue the development. In the US, interest rates are likely first be pressed by inflowing capital even further, which is attracted by the higher returns by international standards.
The Fed has variously made with the assumption of office by Yellen tentative steps to raise rates. Always came (just in time) an event around the corner, that was good enough as an excuse to postpone the project. The Fed called their action driven than data. She has repeatedly changed their critical thresholds when data were going to tear down this and thus to trigger a rate hike. A forward-looking, strategic, so reliable policy looks different. The Fed is not master of the situation, but rather driven by the fear of the consequences of their own policies.
A key element of the “modern” monetary policy is the effort to weaken its own currency. Here lurk unexpected consequences, as has been demonstrated in the reaction of the yen on the introduction of negative interest rates in Japan in late January. It was supposed to expect further weakness, instead strengthened the Japanese currency sustainably. So far, the dollar reacted “planned” by training strength with increasing interest differential. This need not be so. And if it does not remain so, that would be a clear warning sign.
The real problem of the world economy is the high level of debt, financing costs too much of the annual value. This problem is indeed low by continually falling interest rates – but only if there is still plenty of growth left. The ultra-low to negative interest rates are the wrong incentives. Reduced consumption will be punished, as well as savings and capital-based pension. In addition, by the ever increasing debt increases the risk of financial instability. This increases the risk that the central banks of the magazine completely out of hand, namely when large players in the bond markets in anticipation of or in response to the bursting of the bond bubble sale positions and thus yields push up.
The following chart illustrates in a simple model of how the evolution of the total debt in relation to the growth effect. This model indicates the currently playing as 2012/2013 debt-induced “Trouble”.
the real monetary base is shrinking in the US in July over the previous year by 5.9%. 2012/2013 there was ever such a long period of shrinking money supply. Also, the TED spread indicates a decrease in liquidity.
liquidity movements are one of the most important short-term determinants of asset price changes. Decreasing liquidity usually means short term less potential for development in the rates / prices.
Often accompanies a change of climate in the financial markets at the beginning of September. P 500 barely moved from the spot, he is trapped in a tight range, in recent weeks, the S & amp has. This low volatility will dissipate soon, any tender evidence of a rate hike or just not suck at best, as a catalyst for anyway “in the pipe” located developments.
At the annual central bankers meeting in Jackson Hole, the main question is, how to create stable monetary policy framework. In the short term expect the actors on the financial information on the timing of interest rate policy in the US. Once again, trembled before a rate hike, which should be made more likely by allegedly improved conditions in the real economy. In line with the strategic orientation of monetary policy, there are indications that we are still surprised at the bouquet of unconventional measures, the central bankers to serve us in the future.
(08/27/16) Fed chief Yellen As expected, provided an early rate hike in view. Macroeconomic data, such as employment and price levels to the target areas approached, she said. The S & P 500 decided yesterday session after volatile trading course just claimed
Source: http://www.timepatternanalysis.de/Blog/2016/08/26/. 14938 /