A steady Eddie commonly refers to a person who does everything by the rules and doesn’t take risks. Edward (“Eddie”) George, Governor of the Bank of England (1993-2003), earned this nickname because of his determination to steady the British economy and his composure during crises.
Central bankers were the “Steady Eddies” last week, making a number of important calming and stabilizing announcements.
First, Jay Powell was confirmed by the U.S. Senate (85 yea and 12 nay) to serve as the next chairman of the Federal Reserve Board. Mr. Powell represents a stability candidate who is not expected to deviate from Ms. Yellen’s program for slowly tightening monetary policy and reducing the Fed’s balance sheet. As we know, Ms. Yellen’s first and only term as Fed chair is due to end on February 3.
Second, The Bank of Japan announced after its regularly scheduled meeting last week that it would keep steady its short-term policy rate at negative 0.1 percent and will continue to purchase Japanese government bonds (JGBs), so that 10-year JGB yields will remain at around zero percent. The bank will purchase at more or less the current pace–an annual rate of about 80 trillion yen, although recent amounts have been less. Even its goals remain steady, as the Bank of Japan still expects to reach its 2.0% inflation goal by fiscal 2019.
Third, the European Central Bank (“ECB”) also met last week and left its ultra-loose monetary policy in place despite economic improvements in the European Union. Additionally, Mr. Draghi was fairly balanced in his views on risks to the European economy. “On the one hand, the prevailing strong cyclical momentum could lead to further positive growth surprises in the near term,” he remarked. “On the other hand, downside risks continue to relate primarily to global factors, including developments in foreign exchange markets.” Of course, he is referring to the recent rise of the Euro and the fall of the U.S. dollar, but that is a topic for another day.
We mentioned in our 2018 Fixed Income Outlook Call a few weeks ago that central banks will likely drive financial markets in 2018, and not just for bonds. Risk assets such as stocks are also taking cues from central banks to see when the easy money punchbowl will be taken away. Based on the limited response in U.S. bonds and the stock rally we saw late last week after the meetings were in the books, we’d say the markets like what they heard, suggesting that steady is a good thing for investors.
Source: The Financial Times, Bloomberg, The Federal Reserve, the Bank of Japan and the European Central Bank
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