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12 Sep 2013
Flash: New direction of the Fed? – Deutsche Bank
FXstreet.com (Lisbon) - Optimism on global growth is rising and there is also much discussion on the Fed’s plan to taper unconventional monetary policy, notes Macro Strategy Analysts J. Reid and C. Tan at Deutsche Bank.
Key quotes
However, “the 5-year moving average of global nominal GDP growth is now at its lowest rate since the 1930s. In the US, which is one of the bright spots globally, nominal GDP growth has been at 3.1%, 3.1% and 3.8% in Q2 ’13, Q1 ’13 and Q4 ’12 respectively. These numbers are lower than where they were in the prior 2 quarters (4.8% and 4.5%) when ‘QE infinity’ was being formulated and announced. If we had a nominal GDP target we may now be discussing increasing QE and not tapering.”
“Any recovery should be seen in this context. Given the structural issues that we think will continue to hold back growth, unconventional monetary policy may actually need to increase in the years ahead. However given the far superior performance of asset prices relative to economic activity since QE started, perhaps how monetary policy is distilled through the economy needs to be improved.”
“Expanding ‘traditional’ QE might not be the answer. We think that more debate is needed on policies that directly target nominal GDP and not just asset prices. Perhaps the ground work is currently being laid for this by the blurring of lines between Governments and central banks.” In the US, President Obama is about to hand-pick Bernanke’s successor. The ECB is institutionally an outlier but even Draghi has stepped beyond his inflation remit with his ‘whatever it takes’ speech last summer. Globally the next few years may bring politicians and central bankers closer together and monetary policy that directly targets growth over financial assets.”
Key quotes
However, “the 5-year moving average of global nominal GDP growth is now at its lowest rate since the 1930s. In the US, which is one of the bright spots globally, nominal GDP growth has been at 3.1%, 3.1% and 3.8% in Q2 ’13, Q1 ’13 and Q4 ’12 respectively. These numbers are lower than where they were in the prior 2 quarters (4.8% and 4.5%) when ‘QE infinity’ was being formulated and announced. If we had a nominal GDP target we may now be discussing increasing QE and not tapering.”
“Any recovery should be seen in this context. Given the structural issues that we think will continue to hold back growth, unconventional monetary policy may actually need to increase in the years ahead. However given the far superior performance of asset prices relative to economic activity since QE started, perhaps how monetary policy is distilled through the economy needs to be improved.”
“Expanding ‘traditional’ QE might not be the answer. We think that more debate is needed on policies that directly target nominal GDP and not just asset prices. Perhaps the ground work is currently being laid for this by the blurring of lines between Governments and central banks.” In the US, President Obama is about to hand-pick Bernanke’s successor. The ECB is institutionally an outlier but even Draghi has stepped beyond his inflation remit with his ‘whatever it takes’ speech last summer. Globally the next few years may bring politicians and central bankers closer together and monetary policy that directly targets growth over financial assets.”