Don’t underestimate central banks’ determination to normalise policy

• The Fed remains set to raise interest rates in 2018 and 2019 • Weaker outlook elsewhere has caused speculation that other central banks won’t shift policy • But this ignores central banks’ desire to exit unconventional measures Headline US inflation (the personal consumption expenditure deflator, PCE), reached 2% in the…

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Prepare for central bank regime change

Inflation-targeting independent central banks have a longer history than most CB regimes Market complacency that current regimes will remain is probably too optimistic Most new regimes mooted mean higher, more volatile inflation and thus lower growth Central bank and monetary policy regimes last longer than expected, but also change faster…

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Money data say, replace cautious optimism with guarded pessimism

Over winter, broad money growth in the largest developed markets has slowed down At the same time, the growth of US large time deposits has slumped If maintained, current money trends point to below-trend growth and weaker asset prices In early January we wrote that broad money growth in the…

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Central Banking – Responsibility without Power

So far in this series of articles, we have considered the immediate challenges in front of central banks, which in a nutshell revolve around the normalisation of monetary policy and the re‑establishment of a more orthodox relationship with markets.  In this final article we consider the longer term outlook, once…

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Central Banking – the great unwind

Central banks have always said that the unconventional monetary policy measures they have introduced in recent years are temporary, and they have been keen to restore policy to “normality” when the time is right. As that time approaches, the urgent question is what the great unwind will entail and how they will carry it out.

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