Investors expect policy mistakes as major central banks repeat their “wait-and-see” approach

On April 24, 2020, with the European Central Bank (ECB) headquarters visible in the background, people wearing face masks walk in front of the large Euro sign in Frankfurt am Main, western Germany.

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London — a significant portion of investors US Federal Reserve And that European Central Bank According to a Deutsche Bank survey, monetary policy should be a little too loose and maintained for long periods of time.

In a market sentiment survey of more than 600 investment professionals around the world conducted by German lenders from October 6th to 8th, 42% expected the Fed to remain a little dovish, 24%. Predicted that the central bank would take “almost right” policies. “And 33% foresaw a more hawkish inclination.

There seems to be a high probability of dovish policy errors from the ECB, with 46% expecting the policy to be too adaptable, while 26% said the policy for the entire common currency area was “almost correct.” 21% are premature or over-tightened.

In contrast, 45% see greater risk Bank of England A hawkish policy error occurs, compared to 20% for “almost correct” and 20% for dovish.

Central bank policymakers have been cautious in recent weeks and appear to be taking a “waiting” approach to inflation and rate hike prospects.

However, the Governor of the Bank of England Andrew Bailey on Sunday Banks “must act” against rising inflation, most clearly suggesting that Britain’s interest rates could be raised, he told the panel.


Andrea Enria, chairman of the ECB’s board of auditors, told the European Parliament’s Economic and Monetary Commission Thursday that the economic outlook has improved, but “attention remains essential.”

“We are very careful about accumulating risk on our bank’s balance sheet,” Enria said, adding that the ECB is also seeing “accumulation of residential real estate vulnerabilities in some countries.”

He said banks’ “excessive quest for yields”, along with “declining asset quality,” have encouraged increased demand for leverage and increased market risk.

“Abrupt adjustments in yields, for example caused by changes in investor expectations regarding inflation and interest rates, can cause asset price adjustments and direct and indirect losses for banks in this context,” Enria said. He said.

At the meeting in September, tThe ECB has postponed many important decisions Until December, soaring energy prices have led to inflation in the euro area reaching 3.4% year-on-year, the highest in 13 years, and analysts expect it to continue to rise.

HSBC Senior Economist Fabio Barboni in a Monday survey note argues that President Christine Lagarde will remain very tolerant at the October meeting, despite widespread divisions among the board. He said it was likely.

“December ECB forecasts still show inflation below 2% in the medium term, paving the way for the ECB to announce a step-up of its’normal’QE program along the end of the PEPP in March next year. Our views do not change. I think the first-class rate hike is still a long way off. “

“But the medium-term outlook for monetary policy is certainly uncertain because of the risk that rising energy prices will be more persistent and could lead to the impact of the second round. A rebound is expected. The question is how strong it is. That’s right. “

Bank of England

The Bank of England, meanwhile, is tasked with increasing risk in the fourth quarter, balancing the overall expansion of economic activity with the signs of a sharp slowdown in the third quarter.

UK GDP rose only 0.4% in August and July output was revised down to -0.1%. However, the decline in growth in the third quarter follows an upward revision from 4.8% in the second quarter to 5.5% each year.

“In the face of that, a significant slowdown in economic activity into the third quarter, especially against the rapid tightening of monetary policy, as GDP appears to face continued headwinds due to rising utility prices and reductions in universal credit. It should serve as a warning. [benefits support] David Page, Head of Macro Research at AXA Investment Managers, said:

In a recent comment from Bank of England Governor Andrew Bailey, AXA concluded that banks are planning preemptive policy tightening on the impact of rising inflation expectations.

“We will change our forecasts to assume the first BoE increase (0.15% to 0.25%) in February next year,” Page said in a survey note last week.

“Then we will consider the second (up to 0.50%) in August and the third (up to 0.75%) in May 2023, but the short-term interest rate market will see the first hike in December this year and near full pricing. We are considering a faster pace, such as setting. It will rise to 1.00% by the end of 2022. “

Federal Reserve Board

Bright red inflation data is a major source of speculation that the Federal Reserve Board may sooner or later be forced to raise rates. Minutes from the latest meeting of the Federal Open Market Committee have shown that the central bank may begin to taper monthly bond purchases starting next month.

According to Ministry of Labor statistics, the US consumer price index rose 0.4% month-on-month and 5.4% year-on-year in September.

But Richmond Fed Governor Thomas Barkin said last week that more economic data was needed before the Fed began considering rate hikes.

In an interview with CNBC on Friday, Birkin was inclined to begin the tapering process in November, demonstrating that inflation risk has become a top priority.

The Federal Reserve Board emphasizes that even after the taper begins, it will take some time before rate hikes begin.

Investors expect policy mistakes as major central banks repeat their “wait-and-see” approach

Source link Investors expect policy mistakes as major central banks repeat their “wait-and-see” approach

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