Elga explains why we see the late-cycle policy easing as potentially coming to an end – and what it means for investors.
The Fed’s rate cut last week was the latest installment of a global dovish push this year with the goal of extending an already long economic expansion. Yet the late-cycle easing may end soon. The Fed last week also signaled the potential completion of the rate cuts, significantly raising the bar for additional easing, in our view. What might be behind the move? A potentially tricky combination of slowing growth and inflation creeping higher; and the prospect for firmer growth in 2020 as easier financial conditions filter through to the broader economy.
Many central banks have switched gear this year. See the chart above for the net number of central banks cutting rates. Among them, the European Central Bank cut rates in September for the first time since 2016 and announced a restart of its asset purchase scheme; Brazil’s central bank has cut its benchmark rates to a record low just last week. But some central banks, including the Fed, may be closer to the end of this easing cycle. The Fed signaled a shift to a more data-dependent approach, and we now see a much higher hurdle for it to cut rates again in coming months. Markets are now pricing in just over one quarter percentage point rate cut in the coming 12 months....MOREPreviously links to Dr. Bartsch:
BlackRock Sees "A growth recovery looming ahead"
BlackRock: "How central banks might deal with the next downturn"
BlackRock: "The case for sustained monetary stimulus in Europe"
