This week we find ourselves at the beginning of a short season of central bank policy meetings.
The Bank of Canada and European Central Bank met this week. The Swiss National Bank meets on Sept. 15 and both the U.S. Federal Reserve and Bank of Japan meet on Sept. 21.
While no policy rates have been or are expected to be changed, the discussion of central bank policies and their effectiveness, or lack thereof, still rages in financial markets.
Perhaps a colleague put it best when he quoted an old English naval phrase: “The beatings will continue until morale improves.” The inspiration for recalling that colorful quote came from Bank of Japan Gov. Haruhiko Kuroda, who promised to push interest rates further into negative territory and noted that “sentiment would improve once people became aware of negative rates’ positive effect.”
ECB President Mario Draghi was on the hot seat at this week’s press conference – more for what he didn’t say than for what he did.
Markets were expecting him to express some thoughts about the ECB changing its “Quantitative and Qualitative Easing” program, where the bank has been purchasing certain sovereign and corporate bonds.
That’s because the ECB program is set to expire in March 2017 but it has not accomplished its growth and inflation goals and it is running out of European bonds to buy. Certain self-imposed restrictions limit the pool of bonds from which it can buy – and markets know something has to change.
One big question is whether equities will come into the mix. Yes, that’s right, a central bank might buy company stocks as part of its monetary policy. For this meeting, Draghi said they did not discuss changes to the program, which of course just puts the betting all on the next meeting.
My View: Whether it is continued negative interest rates, buying stocks or any other extraordinary monetary policy, we only slip further into the realization that the more radical central banks get the less effective they are. I don’t blame central bankers for this as much as politicians for the lack of fiscal and structural reform.
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