September 17, 2020

Taking monetary policy to yet another level

Share on facebook
Share on twitter
Share on linkedin
Share on email

In Short

The presentation of the new Long Term goal and strategy on August 27 marks a deep shift in the Fed’s monetary policy. The new way inflation and the labour market will affect monetary policy will result in a marked downward bias to interest rates.
Taking monetary policy to yet another level
Share on facebook
Share on twitter
Share on linkedin
Share on email

Highlights:

  • In its recent strategy review, the Fed formalised its shift to a structurally more accommodative policy stance. It will now target average inflation rate over a prolonged period and will consider only negative deviations from full employment.
  • The low growth, low rates environment reduces the potency of the federal funds rate as an instrument, and requires a more intensive use of other tools like bond purchases. Given the expected slow rebound in inflation, we do not expect any rate hike from the current zero level before at least end-2024.
  • At its recent (Sept 16) meeting, the Fed clearly stated that there will be no rake hike until the economy is at full employment and the inflation is steadily at 2%. No guidance was provided on QE are likely.
  • We expect the ECB to embark on additional policy measures at its December meeting. Its strategy review will likely endorse a symmetric inflation target, a higher role of underlying inflation and possibly average inflation targeting.
  • Being rather at its policy limits, the BoJ concentrates on supporting fiscal policy and funding for lending.

Download the full publication below

FOCAL POINT: TAKING MONETARY POLICY TO
YET ANOTHER LEVEL

Also interesting

size 3
June 17, 2021
Market Commentary

COVID-19 UPDATE Facts & Figures

Federal-Reserve-building-FED-Washington-USA
June 16, 2021
Market Commentary

The Fed is more confident on the recovery and brings forward to 2023 the first hike

European-Central-Bank-in-Frankfurt_web
June 10, 2021
Market Commentary

ECB holds a steady hand, no tapering yet