Geldpolitik

FOMC minutes: The Fed’s balance-sheet rundown looks like ending soon

The minutes of the FOMC meeting held on 29th /30th January which were published yesterday reveal that committee members are not yet prepared to proclaim that the Fed’s rate-hike cycle is at an end. For example, a number of members of the Fed’s policymaking body have gone on record as saying that further tightening may perhaps be necessary over the course of the year, making this contingent on how the economic situation develops. The transcript shows, however, that almost all FOMC members are in agreement, in view of the growing risks, that a temporary pause in the rate-hiking cycle would be appropriate. They argue that there is currently a whole cluster of risks which, in their view, indubitably justify an interruption in the tightening cycle. Factors imposing a particular burden are the difficult Brexit negotiations, the trade dispute between the United States and China, the volatile equity-market trend and the…

Bleak monetary conditions in Switzerland

The only thing that the monetary conditions in Switzerland currently have in common with the wonderful winter landscape in many areas of the Alpine republic is the frosty temperatures. Not only did the economic momentum experience a severe setback in the autumn of 2018, the hopes of a return to the robust growth rates recorded between spring 2017 and mid-2018 have now also vanished. The same applies to the vague assurance that the inflation rate would move visibly close to the Swiss National Bank’s target level in the foreseeable future: even the economists of the SNB now expect the 2% threshold to be reached in the second half of 2021 at the very earliest. The domestic leads were not the only factors spawning doubts among the Swiss central bankers over a turnaround in key interest rates towards the end of this year – which until recently had been considered possible….

FOMC: First pausing then ending the rate-hike cycle

As generally expected, the Fed left its key rates on hold at yesterday’s meeting. The press statement published in the wake of the interest-rate decision points to a considerably more cautious monetary-policy stance than in earlier months. For example, the Fed’s policymaking committee went on record as saying that they intend to be “patient” with regard to further key rate hikes. Furthermore, the passage in the FOMC Statement providing guidance on the direction of the next monetary-policy step was formulated in a very open way: depending on the future path of inflation, the economic trend and geopolitical circumstances, FOMC members will either raise or lower its key rates. They have signalled at the same time that more flexibility will be allowed in future in terms of normalising the Fed’s balance sheet, arguing that they could stop shrinking the balance sheet if that were warranted by economic developments. This is a…

FOMC: speed throttled

The Fed has hiked its benchmark interest rate for the fourth time this year, raising the target range to between 2.25 and 2.50%. By contrast, the interest rate on excess reserves (IOER) was increased by just 20 basis points to 2.40%. Most market participants had actually expected the fed funds rate hike, even though implicit fed funds futures had only recently signalled a probability of just under 70% for a fed funds rate hike this year. The Fed’s statement published immediately after the interest rate decision reflects not only a slightly more cautious Fed attitude to global risks, but also a shift in expectations as to whether the Fed will raise key interest rates less sharply in the coming year than previously expected. For 2019, the median expectation is for only two rather than three rate hikes. In the run-up to yesterday’s meeting, particularly the Fed governors‘ ideas on the…

Cycle of interest rate rises continues

The US central bank has maintained its course of interest rate rises, extending the interest rate corridor as expected by 25 basis points to 2.0% to 2.25%. The FOMC statement has been adjusted and the level of key interest rates is no longer described as accommodative. However, this had been broadly expected and therefore comes as no surprise to market participants. Otherwise, the adjustments to the FOMC statement – which was agreed unanimously – were as usual only marginal. Projections indicate another rate hike before the end of this year. A clear majority of FOMC members do now at least support a fourth rate move in 2018, which could therefore take place in December. The US central bank has thus essentially confirmed its cycle of interest rate rises which is still expected to end at 3.40%. We share the Fed’s views on monetary policy and expect the central bank to…

ECB: It’s a marathon not a sprint

With regard to its unorthodox monetary policies, the ECB Governing Council today agreed several modifications (http://www.ecb.europa.eu/press/pr/date/2016/html/pr161208.en.html). While the ECB’s bond purchases within the framework of its Asset Purchase Programme (APP) will continue unaffected, however from April 2017 onwards securities amounting to a maximum of EUR 60bn are to be bought until the end of the year and beyond. Nevertheless, the ECB has left a loophole open. Should the economic outlook worsen over the coming months, thereby making the inflation target seem unrealistic, the ECB reserves the right to increase the scope and/or duration of its monthly purchases. In addition to the monthly purchases of EUR 60bn, repayments of bonds falling due, which had up until now been acquired within the scope of the APP, will be reinvested from April as well. In contrast to previous years, which have been characterised by wave after wave of new ECB measures, the coming…

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