Central banks / bond markets

Is the ECB oriented towards the Fed?

Against the background that many central banks have been failing to meet their self-imposed inflation targets for years despite an ultra-expansive monetary policy, the question can be asked as to the appropriateness of these targets. The Fed has now moved forward and announced new targets for the inflation rate and employment development. The ECB, too, announced some time ago that it would be reviewing its monetary policy strategy and possibly adjusting its target inflation rate from the current „close to but below 2% in the medium term“, which it has been using since 2003. In our opinion, the ECB should also be guided by an average inflation rate in its strategy review, which is to be completed by the middle of next year. We believe it is very likely that the ECB will take its lead from the Fed and will aim for a more flexible inflation target. The Fed’s…

New Fed targets

New Fed targets Yesterday’s speech by Fed Chairman Powell was eagerly awaited, as he gave clues about the longer-term strategic direction of US monetary policy. On the market side, it was assumed that the Fed would explicitly allow the inflation target to be exceeded. Inflation target has been missed in the past Powell has fully met these expectations. The Fed will no longer be guided by the achievement of a specific inflation rate, but by an average inflation rate of 2% over time. The background to this adjustment is that achieving this target has already caused problems in previous years and inflation has been lower. As part of the strategic review of its monetary policy, which began in November 2018, the Fed examined this issue and has now adjusted its target system as a result. Average inflation – but no precise timing Powell announced at the Federal Reserve Symposium in…

Emerging markets under corona stress

The COVID-19 crisis is a major challenge for the emerging markets. The growth dynamics of the countries are visibly suffering and at the same time the risk appetite of investors is decreasing. Capital withdrawal and lower investments are the result. For the Turkish economy, the Corona pandemic is a special challenge, as it is still weakened by the consequences of the last currency crisis two years ago. In Turkey, two important industries, the export industry and the tourism sector, have been hit hard. In contrast to the currency crisis two years ago, they are now completely absent as a support. The Turkish economy is therefore likely to suffer greater damage in the current year than in the currency crisis of 2018 and the financial crisis of 2009. The Turkish economy is expected to shrink by 8% in 2020 compared with the previous year. The development of the currencies reflects the…

There is no need to be afraid of inflation

Fear and concern about inflation is unfounded. The long-term consequences of central bank policy are probably to be seen in other areas, but they can have just as many consequences as permanently high inflation. Once again, the fear of inflation is on the rise. This time, as repeatedly in recent years, the triggers are the central banks‘ major rescue programmes. All over the world, interest rates were cut, liquidity was pumped into the markets and assets were bought. In the Corona crisis, these programs in the larger countries generally far exceeded the trillion mark. An end is not in sight. The enormous commitment of central banks is not a new phenomenon. Already after the financial and debt crisis, central banks saved the global economy from greater damage with programmes of this kind. Even then, there were always phases with greater concern about a rapid rise in inflation, but inflation did…

Zentralbanken geben Vollgas und Finanzmärkte verlieren Bodenhaftung

Die Corona-Pandemie hat zwar in unterschiedlichem Tempo, aber letztlich doch die ganze Welt erfasst. Die breite Bevölkerung pendelt zwischen Ignoranz und Hysterie, Regierungen und Notenbanken haben ihren Handlungsauftrag in dieser Krise aber angenommen. Praktisch alle hatten ihren „Whatever it takes“ Moment – nur die Auslegung dessen, was notwendig ist, unterscheidet sich. Der Wunsch nach Abfederung des Wachstumseinbruchs, Stabilisierung des Vertrauens der Finanzmärkte und Sicherung der Kreditversorgung hat die Regierungen und Notenbanken weltweit auf den Plan gerufen. So unterschiedlich die Ausgangslage vor Ausbruch der Pandemie auch war, haben inzwischen fast alle Notenbanken der von uns betreuten Währungsräume einschneidende Lockerungsmaßnahmen beschlossen. Wir sehen hierbei eine Mischung aus Verbilligung der Zentralbankliquidität (Zinssenkungen) und Ausweitung der Beschaffungswege (neue Fazilitäten, Erweiterung der Sicherheiten). Die umfangreichsten und teilweise umstrittensten Lockerungsmaßnahmen gab es fraglos von der EZB und der Fed. Die Geldpolitik in den kleineren Ländern ist insgesamt auch von einem starken Expansionsgrad gekennzeichnet, allerdings mit unterschiedlichem…

Central banks keep going

This week, central banks in Japan, the US and the euro area discussed and announced their decisions. The tone of all three central banks is that all monetary policy forces will be deployed to support the economy. The bond purchase programs will continue unchanged and the volume will be increased if necessary. Liquidity will continue to be made available in abundance and central banks will accept an ever wider range of collateral to avoid bottlenecks. The Fed has also expanded direct access for companies to central bank liquidity. The ECB has also decided to further ease monetary policy. With the introduction of PELTROs (Pandemic Emergency Longer-term Refinancing Operations) the key interest rate was de facto lowered by 25 basis points and is now at minus 0.25%, although the refinancing rate has not been officially changed. The key interest rates of all central banks thus remain at 0%. The new crisis…

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