Advertisement
The View | How the Fed interest rate rise and other central banks’ monetary policies have left financial markets all jittery
Nicholas Spiro says the divergence in monetary policy among the Federal Reserve, European Central Bank and Bank of Japan has unsettled investors
Reading Time:3 minutes
Why you can trust SCMP
Late last year, most investment strategists believed 2018 would be the year that would mark a decisive shift towards the normalisation of monetary policy.
Central-bank watchers expected the Federal Reserve, under its new chair Jerome Powell, to accelerate the process of raising interest rates and shrinking its US$4.5 trillion balance sheet. They also anticipated that the European Central Bank would announce the end of its quantitative easing (QE) scheme. Some analysts even expected the Bank of Japan, which is furthest away among the big three central banks from normalising policy, to raise its target for 10-year government bond yields slightly as inflation showed signs of picking up.
Fast forward six months, and most of these predictions have proved accurate. Yet just a cursory glance at the decisions taken at last week’s meetings of the main central banks shows that the path to policy normalisation is a long and winding one, with many pitfalls lurking along the way. The only central bank which, for the time being, is determined to push forward is the Fed.
Advertisement
Indeed the most striking feature of last week’s meetings is the stark divergence in policies between the leading central banks, especially between the Fed and the ECB, which are both taking measures to withdraw stimulus.
Here is a brief guide to the disparate policy trajectories of the world’s leading central banks and their implications for markets.
Advertisement
Advertisement
Select Voice
Choose your listening speed
Get through articles 2x faster
1.25x
250 WPM
Slow
Average
Fast
1.25x