posted on 26 April 2016
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.
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...
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...
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...
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?
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