econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 26 April 2016

Central Bank Casino: Bank Of Japan, Federal Reserve, Real Estate And Mortgage Rates

by Michael Haltman

This week both the Bank of Japan and the Federal Reserve will be meeting to chart the future course of interest rates.

inerest.rates.question

In the U.S. where prior to the recent small interest rate hike ZIRP or zero interest rate policy had been in place, speculation over whether the Fed will raise or stand pat going forward has been running rampant through the global financial markets.

Mohamed El-Erian, well respected on all things interest rate related, said today that this weeks Fed meeting will set the stage for a June rate hike...

'Mohamed El-Erian, the chief economic adviser at Allianz SE , said on Monday he expects this week's Federal Reserve policy-setting meeting to set the stage for a June interest rate hike.

El-Erian told Reuters: "Fed officials may even be tempted to hike as early this week though this remains a lower probability event." The Federal Open Market Committee is due to meet Tuesday and Wednesday and then next on June 14-15.' (Source)

The reality is, however, that the spate of stimulus since the financial crisis has not accomplished the Fed's dual-mandate which is full employment and inflation at a predetermined target rate. Some might argue that with the unemployment rate hovering around 5% that the employment target indeed has been reached but, if one were to look under the hood of the statistics, that's not necessarily true.

But what ZIRP has accomplished may not necessarily be a positive for investors who have been forced to search high and wide for yield...

'Bond investors are taking bigger risks than ever before.

Yields on $7.8 trillion of government bonds have been driven below zero by worries over global growth, meaning money managers looking for income are pouring into debt with maturities of as long as 100 years. Central banks' policy is exacerbating matters, as the unprecedented debt purchases to spur their economies have soaked up supply and left would-be buyers with few options.

While demand has shown few signs of abating, investors are setting themselves up for damaging losses if average yields rise even a little from their rock-bottom levels. Based on a metric called duration, a half-percentage point increase would result in a loss of about $1.6 trillion in the global bond market, according to calculations based on data compiled by Bank of America Corp.' (Source)

From U.S. ZIRP To Japan's NIRP!

Moving from the U.S. monetary policy of ZIRP, the Bank of Japan (BOJ) which meets this Thursday has had the policy in place of NIRP, or negative interest rate policy!

Bogged down with an underperforming economy and recessionary pressures for quite some time the Bank of Japan has embarked on a program of negative interest rates or, in essence, of investors paying to have their money held in what are considered to be safe havens.

So what will the BOJ do this week? The world could see a trifecta of moves as explained here...

'Earlier this year, the BoJ followed the lead of the European Central Bank (ECB) and went negative - cutting its headline interest rate to minus 0.1 per cent. As the BoJ gears up for a crucial monetary policy meeting later this week, analysts suggest it could be about to fire all its guns at once with not one but three policy shifts:

  1. Lower interest rates - The BoJ is tipped to cut rates to at least minus 0.2 per cent by half of economists polled by Bloomberg.

  2. More QE - Japan's central bank is currently pumping 80 trillion yen (£490bn) a year into the economy through its bond-buying programme. In a meeting earlier this year, some BoJ officials considered increasing that to "100 trillion yen or more".

  3. Pay to borrow - The BoJ could go into negative territory in the interest rates it offers banks to borrow from it. At the moment, banks can borrow free (at a rate of zero per cent interest) from the BoJ. But the so-called Simulated Bank Lending Facility could be cut to minus 0.1 per cent - effectively paying banks to borrow.' (Source)

So will the central banks decisions later this week be a net positive for the global economy?

And in reality can these central banks actually raise rates for fear of the cascading impact that such a move would have?

And finally for economies that are dependent on a strong and vibrant real estate sectors will the moves be a net positive or negative?

Stay tuned!


Related Articles

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical Opinion Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.



You can also comment using Facebook directly using he comment block below.





Econintersect Opinion


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
The Expected Effects of Petitions to Improve the Monetary System
Energy and Falling Productivity
News Blog
October 2016 Economic Forecast: Outlook Insignificantly Declines But Little Economic Strength Entering 4Q2016
1 Minute. 34 Seconds. In The U.S., That's All It Takes To Register To Vote. A Single Registration Lasts A Lifetime Of Elections. We've Made It Easy For You Here: Http://g.co/elections/134
Durable Goods New Orders Unchanged in August 2016
90% Rally In Sugar Prices Since Late 2015
U.S. Real Wage Growth: Slowing Down With Age - Part 2 Of 2
Infographic Of The Day: Four Tips To Grow Wealth
Early Headlines: Asia Stocks Down, Yen Rises, Oil Soft, Wells CEO Gives Up Bonuses, Trump Didn't Want To Embarass Clinton, US Asset Bubbles, US Crime Rates Falling And More
What is Democracy, Anyway?
Transcript Of Elizabeth Warren Questioning Wells Fargo CEO John Stumpf
Documentary Of The Week: Elizabeth Warren Indictment Of Wells Fargo
Clinton Wins Round One
Why Alzheimer's Research Is Failing To Hit Treatment Targets
Voters Still Distrust Both Presidential Candidates
Investing Blog
Banks Of Absurdity
Investing.com Technical Summary 27 September 2016
Opinion Blog
Trump Stumped In First Debate With Clinton - Will It Cost Him?
Why All Banks Should Be Federally Owned
Precious Metals Blog
War On Cash Turns To $20, $50, And $100 Bills
Live Markets
28Sep2016 Market Close: Wall Street Closes Higher After A Sluggish Start In The Morning, Crude Prices Close Higher In Face Of GS Saying Crude Will Fall, Indicators Neutral
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government



Crowdfunding ....






























 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2016 Econintersect LLC - all rights reserved