[TE Article Summary] Loose fitting - Global monetary policy is not tightening as expected
1. URL: http://www.economist.com/news/finance-and-economics/21722868-quiescent-inflation-means-low-interest-rates-are-still-only-game-town-global
2. Topic: Loose fitting
3. Title: Global monetary policy is not tightening as expected
4. Subtitle: Quiescent inflation means low-interest rates are still "the only game in town."
Print Edition, Finance and economics, June 1st, 2017
1. With FRA raising the interest by a quarter-point and expecting three interest hikes or more in case of tax cuts, ECB and BoJ cutting back on QE, 2017 seemed like a turning point for global monetary policy at the outset except for China keeping it as loose as the last year.
2. June 7th and 8th ECB meeting which had been expected to signal the tapering of QE was not so pivotal as expected, but signaling continuing their program.
3. After Feds' raising, the rest of the world has not moved as planned. The recent monetary conditions and the pace of the asset purchases indicate other giants such as Europe, Japan, and China are reluctant to go too far.
4. Considering "real" low inflation excluding food and energy costs such as higher oil prices and their efforts to protect financial stability, central banks are reluctant to radically tighten their monetary policies.
5. ECB is worried about a sudden rising in bond yield, especially for high-debted countries like Italy. China where Debt/GDP rising from 150% in 2007 to 280% in 2016 didn't raise 1yr rate of 4.35% which was its old way of controlling money supply, but increased by half a percentage point from 2.5% in February to 3% in May to restrict "shadow banks"
6. China's regulator clamped down on banks attempts for leveraging and shadow banking and, at the same time, provided medium-term liquidity and state-directed infrastructure finance by policy banks to minimize any potential damage. Anyways credit has declined from 16% in 2016 to 14.5% and is expected to decline further to 13% and the GDP growth will slow as well.
7. Financial stability such as car-loan market, corporate debt, and house prices-to-rents are not Fed's main concerns but underlying (core) inflation rate is falling and the real wage growth is not recovering in spite of enhanced employment rate.
8. Markets have priced in differently than Fed expectation which plans to increase it to 2.25% by the end of 2018 while the market expects 1.5% by then. Also, Fed prepared a ground for balance-sheet reduction by $12bn that will push up ten-year yields by 0.25%
9. Falling long-term rates from 2.6% in March and 2.2% now is maybe a signal that short-term rates will not likely rise in the near term. Still, central banks are purchasing asset and there is nothing significant to stop the recent upbeat market mood.
2. Topic: Loose fitting
3. Title: Global monetary policy is not tightening as expected
4. Subtitle: Quiescent inflation means low-interest rates are still "the only game in town."
Print Edition, Finance and economics, June 1st, 2017
1. With FRA raising the interest by a quarter-point and expecting three interest hikes or more in case of tax cuts, ECB and BoJ cutting back on QE, 2017 seemed like a turning point for global monetary policy at the outset except for China keeping it as loose as the last year.
2. June 7th and 8th ECB meeting which had been expected to signal the tapering of QE was not so pivotal as expected, but signaling continuing their program.
3. After Feds' raising, the rest of the world has not moved as planned. The recent monetary conditions and the pace of the asset purchases indicate other giants such as Europe, Japan, and China are reluctant to go too far.
4. Considering "real" low inflation excluding food and energy costs such as higher oil prices and their efforts to protect financial stability, central banks are reluctant to radically tighten their monetary policies.
5. ECB is worried about a sudden rising in bond yield, especially for high-debted countries like Italy. China where Debt/GDP rising from 150% in 2007 to 280% in 2016 didn't raise 1yr rate of 4.35% which was its old way of controlling money supply, but increased by half a percentage point from 2.5% in February to 3% in May to restrict "shadow banks"
6. China's regulator clamped down on banks attempts for leveraging and shadow banking and, at the same time, provided medium-term liquidity and state-directed infrastructure finance by policy banks to minimize any potential damage. Anyways credit has declined from 16% in 2016 to 14.5% and is expected to decline further to 13% and the GDP growth will slow as well.
7. Financial stability such as car-loan market, corporate debt, and house prices-to-rents are not Fed's main concerns but underlying (core) inflation rate is falling and the real wage growth is not recovering in spite of enhanced employment rate.
8. Markets have priced in differently than Fed expectation which plans to increase it to 2.25% by the end of 2018 while the market expects 1.5% by then. Also, Fed prepared a ground for balance-sheet reduction by $12bn that will push up ten-year yields by 0.25%
9. Falling long-term rates from 2.6% in March and 2.2% now is maybe a signal that short-term rates will not likely rise in the near term. Still, central banks are purchasing asset and there is nothing significant to stop the recent upbeat market mood.
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