Spoiler alert: easy money will continue to prolong the economic expansion – no inflation in sight.
The Federal Reserve kicked things off on Wednesday last week with a highly anticipated increase in the federal funds rate to 1.50%. The Fed also anticipates three further 25 bps increases in 2018. Additionally, the Fed’s balance sheet will shrink by $10 billion in December and $20 billion in January. Even with these changes monetary policy remains accommodating – rates are historically very low and money is easy.
Looking to the future, Yellen and economists at the Fed anticipate stronger GDP growth of approximately 2.5% this year and next along with lower unemployment. Inflation is still below expectations, but there is faith wage pressures will mount as companies increasingly scramble to find workers.
More interestingly, Yellen downplayed the impact of tax cuts. “While changes in tax policy will likely provide some lift to economic activity in coming years, the magnitude and timing of the macroeconomic effects of any tax package remain uncertain,” Yellen said, though she also suggested the tax package holds the potential to boost consumer spending and capital expenditures.
Across the pond, European monetary policy is even more accommodating. One day after the Fed’s announcement, the ECB announced its main refinancing rate will stay at 0% and the deposit rate will remain at minus 0.4 %. This is not just easy money, it’s free money!
Additionally, the ECB reiterated that it “stands ready” to increase the size of its bond-buying program in the unlikely event that the recovery sputters. The EU’s economy is doing quite well, by European standards, with the latest forecasts of 2.4% growth in 2017 and 2.3% in 2018. Inflation is still disappointing, however, with the latest forecasts suggesting headline inflation will finish 2017 at 1.5%, before dipping to 1.4% in 2018. Unemployment is still high in the EU, which means Europe will not benefit from wage pressure as we should in the U.S. Still, the ECB’s uber-easy policy is viewed as appropriate considering Europe’s economic recovery is a few years behind that of the United States.
Finally, the Bank of Japan meets this week, and despite some good recent GDP numbers, everyone expects its easy money policies to continue. So the message is really consistent across the globe: easy money policy supporting continued economic expansion with little change in sight. Happy Holidays!
Source: The Financial Times, Bloomberg, the NY Times, BCA Research, the Economist
Your Financial Planner Will Be Replaced by a Computer
Should You Follow This Billionaire Investor Towards Gold?
How To Become A Force To Be Reckoned With
How to Avoid Ghosting
Beyond Meat, Beyond Logic: The Future of Food?
The Rise of ‘Tech for Good’ and How to Implement It Effectively in 2019
Plan for Tomorrow, Live for Today!
How to Take Your Digital Marketing From Naïve to Native
The Yellow Brick Road Towards Thought Leadership
Central Banks Take the Spotlight This Week
Insights20 hours ago
The Elections and Your Portfolio
Development20 hours ago
Freedom From the Big Brand: Unencumbered Growth for an $800mm Team
Insights20 hours ago
The Biggest Risk to Advisors
Equities2 days ago
These 4 Stocks Are Pointing Higher
Development2 days ago
6 Things Banks Taught Us About Building A Super Profitable Business
FinTech2 days ago
The Logic of Digital Change
Permission to Succeed3 days ago
A Liquid Commodity for Diamonds with Cormac Kinney
Building Smarter Portfolios3 days ago
Why Insured Municipal Bonds Make Sense Today