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Will It Be Enough?
Will it be enough?
That's the question on the minds of macro watchers as two of the three heavyweights (the Fed and the ECB) get set to join the RBA, RBNZ and a hodgepodge of emerging market central banks including the RBI, CBT, CBR, BI and the BOK, in cutting rates.
Clearly, the prospect of a coordinated, global dovish pivot has buoyed risk assets in 2019, as the reinvigorated hunt for yield turbocharges another carry mania and pushes investors out the risk curve.
The issue, as ever, is whet
So maybe QT, not rates, is the problem. And maybe the Fed ought to end that experiment — for now, at any rate — like, tomorrow.
Actually, QE was the experiment, designed to re-capitalise the banks in the hope that they’d lend back to the economy, not QT.
You’re right, although QT was designed to address one of the negative consequences of the QE experiment (the Fed’s supersized balance sheet). One could also argue that raising rates and shrinking the balance sheet simultaneously was a (bold?) experiment — one that seems to have failed.
Really the issue, which has been the issue all throughout the recovery from the GFC into the present growth cycle, is the well below historical average velocity of money. No one has any idea on how to alleviate the low velocity of money problem other than the general idea of normalization, i.e. QT. But QT has not worked either, so it leaves me with the “now what?” feeling.
I would wager that the problem is wage suppression. The federal minimum wage hasn’t budged since 2009, and real wages have been almost flat since the Nixon Administration according to the Economic Policy Institute. Public companies are hammered whenever labor costs go up, and nothing will make the Fed more hawkish than hot wage growth numbers. Fiscal policy has concentrated wealth, and consumer spending and increases in standard of living are fueled by debt.
Yup. The rich have lower marginal propensities to consume; supply-siders are not only wrong, they’re utterly backwards.
I think the Chinese are tired of Trump. What they decide to do will be weighed against whether an action will benefit his re-election chances or not.