First published: Prospectmagazine.co.uk, 26/10/2015
Easy money isn’t as simple as it seems
Last week, the European Central Bank (ECB) and the People’s Bank of China (PBC) both gave financial markets something to cheer about. This week the Federal Reserve and the Bank of Japan hold their monthly meetings. The latter could announce a further expansion of its already significant QE programme. No one expects the Fed to copy its peers. Indeed the expectation among the majority of economists polled in surveys is that the Fed is still poised to go in the opposite direction by raising interest rates at its December meeting. But we have been here as recently as last month when the Federal Reserve’s policy committee backed away from the rise in interest rates it had previously touted as coming.
Last week, Mario Draghi of the ECB forewarned that the central bank would act soon to forestall rising economic risks and stubborn, below target inflation. Until now, many analysts had been cautiously hopeful about the eurozone recovery which is steady, if slow, with loans to small companies and for house purchase picking up. But like its US counterpart last month, the ECB is anxious that the recovery could be shaken or knocked off course by the deteriorating situation in emerging markets, to which the eurozone sends about a quarter of the exports it ships outside the single currency area. German exports to China, for example, have faltered this summer…Read more: