The big three central banks (Federal Reserve, European Central Bank and the Bank of Japan) met this week to review their monetary stance. In this mid-quarter update, we share our analysis, The Monetary Policy Pitchfork.
After a decade of emergency monetary policy, the major central banks are starting to normalize policy. The Federal Reserve is the furthest along in this process, with the European Central Bank second and the Bank of Japan a distant third.
A component of each central bank’s toolkit has been large scale asset purchases, otherwise known as quantitative easing. Now, this process is slowly moving into reverse and quantitative tightening has begun.
In this update, our investment team reviews the consequences of this change in monetary policy by the world’s major central banks. If quantitative easing lowered interest rates and contributed to a surge in the US Dollar, will quantitative tightening lead to the opposite outcome?
We believe the answers to these questions have important ramifications for asset allocation. To read our full analysis, please click to download The Monetary Policy Pitchfork.