Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Further Clues Reveal Gold’s Weakness - 26th Nov 20
Fun Things to Do this Christmas - 26th Nov 20
Industries that Require Secure Messaging Apps - 26th Nov 20
Dow Stock Market Trend Analysis - 25th Nov 20
Amazon Black Friday Dell 32 Inch S3220DGF VA Curved Screen Gaming Monitor Bargain Deal! - 25th Nov 20
Biden the Silver Bull - 25th Nov 20
Inflation Warning to the Fed: Be Careful What You Wish For - 25th Nov 20
Financial Stocks Sector ETF Shows Unique Island Setup – What Next? - 25th Nov 20
Herd Immunity or Herd Insolvency: Which Will Affect Gold More? - 25th Nov 20
Stock Market SEASONAL TREND and ELECTION CYCLE - 24th Nov 20
Amazon Black Friday - Karcher K7 FC Pressure Washer Assembly and 1st Use - Is it Any Good? - 24th Nov 20
I Dislike Shallow People And Shallow Market Pullbacks - 24th Nov 20
Small Traders vs. Large Traders vs. Commercials: Who Is Right Most Often? - 24th Nov 20
10 Reasons You Should Trade With a Regulated Broker In UK - 24th Nov 20
Stock Market Elliott Wave Analysis - 23rd Nov 20
Evolution of the Fed - 23rd Nov 20
Gold and Silver Now and Then - A Comparison - 23rd Nov 20
Nasdaq NQ Has Stalled Above a 1.382 Fibonacci Expansion Range Three Times - 23rd Nov 20
Learn How To Trade Forex Successfully - 23rd Nov 20
Market 2020 vs 2016 and 2012 - 22nd Nov 20
Gold & Silver - Adapting Dynamic Learning Shows Possible Upside Price Rally - 22nd Nov 20
Stock Market Short-term Correction - 22nd Nov 20
Stock Market SPY/SPX Island Setups Warn Of A Potential Reversal In This Uptrend - 21st Nov 20
Why Budgies Make Great Pets for Kids - 21st Nov 20
How To Find The Best Dry Dog Food For Your Furry Best Friend?  - 21st Nov 20
The Key to a Successful LGBT Relationship is Matching by Preferences - 21st Nov 20
Stock Market Dow Long-term Trend Analysis - 20th Nov 20
Margin: How Stock Market Investors Are "Reaching for the Stars" - 20th Nov 20
World’s Largest Free-Trade Pact Inspiration for Global Economic Recovery - 20th Nov 20
Dating Sites Break all the Stereotypes About Distance - 20th Nov 20
THE STOCK MARKET BIG PICTURE - Video - 19th Nov 20
Reasons why Bitcoin is Treading at it's Highest Level Since 2017 and a Warning - 19th Nov 20
Media Celebrates after Trump’s Pro-Gold Fed Nominee Gets Blocked - 19th Nov 20
DJIA Short-term Stock Market Technical Trend Analysis - 19th Nov 20
Demoncracy Ushers in the Flu World Order How to Survive and Profit From What Is Coming - 19th Nov 20
US Bond Market: "When Investors Should Worry" - 18th Nov 20
Gold Remains the Best Pandemic Insurance - 18th Nov 20
GPU Fan Not Spinning FIX - How to Easily Extend the Life of Your Gaming PC System - 18th Nov 20
Dow Jones E-Mini Futures Tag 30k Twice – Setting Up Stock Market Double Top - 18th Nov 20
Edge Computing Is Leading the Next Great Tech Revolution - 18th Nov 20
This Chart Signals When Gold Stocks Will Explode - 17th Nov 20
Gold Price Momentous ally From 2000 Compared To SPY Stock Market and Nasdaq - 17th Nov 20
Creating Marketing Campaigns Using the Freedom of Information Act - 17th Nov 20
ILLEGITIMATE PRESIDENT - 17th Nov 20
Stock Market Uptrend in Process - 17th Nov 20
How My Friend Made $128,000 Investing in Stocks Without Knowing It - 16th Nov 20
Free-spending Biden and/or continued Fed stimulus will hike Gold prices - 16th Nov 20
Top Cheap Budgie Toys - Every Budgie Owner Should Have These Safe Bird Toys! - 16th Nov 20
Line Up For Your Jab to get your Covaids Freedom Pass and a 5% Work From Home Tax - 16th Nov 20
You May Have Overlooked These “Sleeper” Precious Metals - 16th Nov 20
Demystifying interesting facts about online Casinos - 16th Nov 20
What's Ahead for the Gold Market? - 15th Nov 20
Gold’s Momentous Rally From 2000 Compared To Stock Market SPY & QQQ - 15th Nov 20
Overclockers UK Quality of Custom Gaming System Build - OEM Windows Sticker? - 15th Nov 20
UK GCSE Exams 2021 CANCELLED! Grades Based on Mock Exams and Teacher Assessments - 15th Nov 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Where the Fed Goes, Other Central Banks May Not Follow

Interest-Rates / Central Banks Mar 20, 2017 - 12:19 PM GMT

By: STRATFOR

Interest-Rates

It has been a busy couple of days for the world's central banks. Since the U.S. Federal Reserve made its decision to hike interest rates, rate announcements have followed from the People's Bank of China, the Bank of Japan, the Swiss National Bank and the Bank of England. This confluence of activity from most of the key guardians of the global economy provides a good opportunity to take stock of where things stand.


The Federal Reserve had telegraphed its intent to raise its benchmark rate well before Wednesday's announcement, so it came as no surprise. In the past few weeks, various Fed governors had conducted a coordinated speaking campaign to prepare the markets, and Friday's report showing strong U.S. jobs numbers removed its last impediment to action. With recent U.S. economic data generally robust, the Fed wants to give itself room to boost rates two or possibly even three more times during the year.

Although the dollar dropped in the wake of the announcement, the hike should buoy the currency in the medium term as the divergence between U.S. interest rates and those of its peers brings money flowing into the United States. Other central banks are thus faced with a choice: Do they track U.S. actions to protect their currencies, or do they stand pat and take their chances?

The People's Bank of China chose the first path. With capital flight already a major issue, the Chinese bank boosted its interbank rate to try to stay as close to U.S. rates as possible. The Bank of Japan, which favors a weaker yen, chose to leave its policy unchanged, no doubt less worried by the prospect of interest rate divergence. The same can also be said for the Swiss and English central banks, which both left their policies unchanged. Switzerland generally faces a perennial struggle to keep a lid on the franc's value, while the United Kingdom is currently attempting to stimulate exports, making it less keen to maintain a strong currency than in recent decades.

Below the surface of the central banks' moves, or lack thereof, lurks the question of inflation. Controlling prices is the sole mission of almost every major central bank (the Fed has a dual mandate that also includes managing unemployment), so inflation numbers are the true drivers that shape monetary policy over time. Following several years in which central banks had to battle deflation, inflation has returned to the developed world over the past 12 months, and this has changed the tendency among central banks from further monetary easing to tightening.

But this inflationary trend appears to rest on weak foundations. The first sign of the turnaround in prices emerged last year in China, where falling commodity prices since 2012 had created an ongoing drop in production prices, which manifested around the world as consumers bought cheaper Chinese products. As commodity prices stabilized last year, driving Chinese production prices up for the first time in four years, they helped create the reflation narrative that seized global markets. (The rises and falls in commodity prices also directly affect each country's inflation figures, not just through China.)

But inflation driven by commodity price increases is less sustainable than that caused by wage pressures. If commodities reverse, the inflationary gains would rapidly evaporate, leaving central banks back where they started at the start of 2016. On March 8, China released figures for February that showed producer prices accelerating at their fastest rate in nearly nine years. But this news came as the Brent oil price was in the midst of a sharp fall, dropping below $51 for the first time since November. Thus, while Chinese price trends still seem strong, their underlying support appears to be somewhat soft.

Meanwhile, the United States continues on a path partly of its own. The U.S. executive branch is committed to actions that would stimulate the economy. It is pushing for tax cuts and increased infrastructure spending — the kinds of policies that would boost wage pressures and make for sustainable inflation. Those ideas face uncertain futures, however. The president and Congress have not yet aligned on what tax reform should look like, for example, but it seems likely that at least some form of corporate tax cut will make it through the legislative process by the end of the year. This, in turn, could influence the Fed to maintain a clear tightening path as the rest of the world comes down off the commodity price bounce and starts to think about loosening monetary policy again.

The last time the world's central banks sharply diverged from the Federal Reserve came after the Fed increased its benchmark interest rate in December 2015, its first increase since 2008 (Wednesday's hike was its third). That divergence led to a two-month period of drama in global financial markets, with sell-offs hammering weak points such as Italian banks and Chinese capital outflows markedly increasing. That period came to an end after central banks apparently coordinated their policies to reduce the divergence. This time around, with strong pressures pushing the actors in different directions, such an alignment would be harder to achieve.

"Where the Fed Goes, Other Central Banks May Not Follow is republished with permission of Stratfor."

This analysis was just a fraction of what our Members enjoy, Click Here to start your Free Membership Trial Today! "This report is republished with permission of STRATFOR"

© Copyright 2017 Stratfor. All rights reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis.

STRATFOR Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules