Fed yet to deliver 2016 rate hike; BOJ, ECB rethinking policy
Aging, slow productivity growth reduce equilibrium rate
This was meant to be the year of monetary policy divergence. Instead, major central banks’ paths — albeit on different trajectories — are converging once more.
The Federal Reserve held fire Wednesday and scaled back tightening plans. Hours earlier, the Bank of Japan tweaked its stance to target a gap between short- and long-term yields to aid the financial industry. The European Central Bank is reviewing its go-for-broke stimulus approach while keeping ultra-easy settings, the Bank of England is expected to cut again, and China is keeping liquidity ample.
Unifying the world’s central banks is recognition it’s going to be a long hard slog to lift inflation to targeted levels, and that slow productivity growth and aging populations have cut potential growth and long-run neutral borrowing costs.
“Interest rates are lower for longer everywhere,” said Michael Every, head of financial markets research for Asia-Pacific at Rabobank International in Hong Kong. “It is a structural function of the dysfunctional global economy that we have.” Read More…