Edmond de Rothschild – Macro Highlights

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Macro Highlights - February 2017

Economists’ insight: (Almost) no surprises from the central banks

§  As expected, the SNB and the BoE kept their monetary policy unchanged, while the Fed raised the fed funds rate by 0.25% to 1.00%.

§  The latest forecasts from the FOMC are practically the same as those from last December. Once again, the Fed’s policy is “political and market dependent” rather than “data dependent”.

„  Focus on central banks: The Fed prepares for quantitative tightening

§  Several US central bankers recently said it was time for the Fed to start thinking about reducing the size of its balance sheet.

§  Here we take a closer look at quantitative tightening, in which the Fed shrinks its securities holdings. We conclude that the decision to stop reinvestments will have to be implemented very gradually and that the aim should not be to reduce the size of the Fed’s balance sheet to its pre-crisis level.

§  Quantitative tightening done in this manner should lead to a limited rise in Treasury yields, although the announcement effect could cause an increase in volatility.

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