Monetary Policy

  • Fed President Bullard argues the regime theory.

    St. Louis Fed President Bullard's 'Regimes'

    The dot plot the recent FOMC meeting was curious.  We noted right away that inexplicably there was one official that apparently anticipated one hike this year and then no hikes in 2017 or 2018.  There was also one dot that was missing for a long-term view.   

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  • The Fed's softer stance did not inspire confidence.

    Searching for Equilibrium

    The Federal Reserve modified its stance yesterday without changing rates.  It is not just about how fast the Fed sees itself normalizing monetary policy but also where the level of the equilibrium rate.

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  • The Fed appears to have backed off more aggressive tightening.

    Now Can We Expected a Slower Tightening Cycle?

    The Federal Reserve anticipated a more gradual tightening path going forward.  This weighed on the dollar and lifted equities.  August Fed funds futures imply less of a chance of a hike next month.  It is now consistent with an 8% chance of a hike, which is less than half the probability assigned at the end of last week.  

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  • Japan's Kuroda has options, but they are all relatively bad.

    Japan's Kuroda and the BOJ are in a Corner

    Following today's FOMC meeting, the central banks of Japan, Switzerland, and the UK meet tomorrow.  The SNB will keep its powder dry to be able to respond to the results of the UK referendum if needed.  The Bank of England is also on hold. 

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  • The Fed is no longer expected to change rates at this meeting.

    Your FOMC Primer

    The FOMC meeting later today, with updated economic projections and a press conference, is the key event of the day, even though three other central banks meet over the next 24 hours.  Investors should know four things before the FOMC meeting.  

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  • The Fed, and three other central banks, meet this week.

    It's All about the Fed...and other Central Banks

    A couple of weeks ago, the four central banks that meet in the coming days were thought to be a big deal.  Numerous Federal Reserve officials were preparing the market for a summer hike. Risks of a new downturn in Japan spurred speculation that BOJ would ease policy.  

    On the other hand, the neither the Bank of England nor the Swiss National Bank were expected to move ahead of the UK referendum on June 23. Besides providing extra liquidity to the banks in the ahead of the vote, the BOE was understood as being in a reactive posture as was the SNB. 

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  • Quantitative easing was labeled unconventional monetary policy.

    When Unconventional Monetary Policy Becomes Conventional

    One of the most significant new developments in the global post-global financial crisis (GFC) economy is the enormous asset purchase programs implemented by central banks in the industrial world to stimulate their economies. Widely known as quantitative easing (QE) programs, their impact has been substantial.

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  • The Fed may hike rates again, and again, before an election.

    Can the Fed Hike Rates in an Election Year?

    The most important element in next week's FOMC meeting may come from the dot plot and whether the Fed officials are backing away from the two hikes thought appropriate in March.

    When looking the schedule of FOMC meetings, and understanding that when the Fed says "gradual" to describe the normalization process, it does not mean hiking at back-to-back meetings, seeing two hikes this year without a summer move is difficult.

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  • So begins the ECB's corporate bond-buying program.

    So Now the ECB is Buying Corporate Bonds

    In March, the ECB decided to increase its asset purchases from 60 to 80 bln euros a month and to include corporate bonds.  The corporate bond-buying program begins this week.  We use an FAQ format to discuss the key issues.

    What is the ECB doing?  The ECB will buy euro-denominated, investment grade bonds from companies incorporated within the Eurozone.

    What is the duration of the corporate bonds that the ECB will buy?  The ECB will purchase bonds that mature in six months to 30 years.

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  • FOMC rate hike expectations appear to be pushed off to July.

    June or July Now Looks Like July

    Through the first part of the year, the swinging pendulum of expectations for the trajectory of Fed policy has been a major driver in the foreign exchange market.  This is true even though the ECB and BOJ continue to ease monetary policy aggressively.

    The Australian and New Zealand dollars appear to be influenced more by the shifting view of Fed policy than the expectations in some quarter that the RBA and RBNZ could cut interest rates as early as this week. 

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