30 Mar 2016
US: Cycle of conflict between authorities and markets continuing for now - Nomura
Richard Koo, Chief economist at Nomura, suggests that over the past few weeks markets around the world stabilized in response to the Fed’s decision not to hike at the March FOMC meeting and the indication that it now expects to raise rates only twice in 2016, down from the four times initially expected.
Key Quotes
“Some markets have even put in new highs for the year.
But now that markets appear to have recovered, senior Fed officials are starting to talk about the possibility of another rate hike as early as the late April FOMC meeting. I see this as the first iteration of a cycle of conflict between investors and the authorities in which market turmoil prompts the Fed to take a step back but only until markets regain their balance, at which point the central bank resumes its drive to normalize monetary policy. I expect this pattern will continue for some time.
In Europe, the ECB announced a host of additional easing measures including four-year long-term refinancing operations (LTROs), an increase in its asset purchases, and further rate cuts.
On the domestic front, economic concerns are gradually making themselves felt on the political stage, with Japan’s prime minister meeting recently with Professors Joseph Stiglitz and Paul Krugman to discuss the economy.”
Key Quotes
“Some markets have even put in new highs for the year.
But now that markets appear to have recovered, senior Fed officials are starting to talk about the possibility of another rate hike as early as the late April FOMC meeting. I see this as the first iteration of a cycle of conflict between investors and the authorities in which market turmoil prompts the Fed to take a step back but only until markets regain their balance, at which point the central bank resumes its drive to normalize monetary policy. I expect this pattern will continue for some time.
In Europe, the ECB announced a host of additional easing measures including four-year long-term refinancing operations (LTROs), an increase in its asset purchases, and further rate cuts.
On the domestic front, economic concerns are gradually making themselves felt on the political stage, with Japan’s prime minister meeting recently with Professors Joseph Stiglitz and Paul Krugman to discuss the economy.”