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. 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 Job Guarantee, Wage-Price Inflation And Alternative Solutions: Part 1
The Job Guarantee, Wage-Price Inflation And Alternative Solutions: Part 2
News Blog
17 March 2017: ECRI's WLI Growth Index Shows Continued Moderate Slowing Of Rate of Growth
Durable Goods New Orders Improved in February 2017
Why NASA Won't Send Humans To Venus
Rail Week Ending 18 March 2017: Short Term Rate of Growth Slowing
How Taxes And Transfers Affect The Work Incentives Of People With Low And Moderate Income
How Tourism Affects China's Current Account Surplus
Infographic Of The Day: The Habits Of Highly Successful Entrepreneurs
To Where The Maple Syrup Flows
The U.S. Has The Most Expensive Healthcare System In The World
Five Maps That Will Change How You See The World
What We Read Today 16 March 2017 - Special Public Edition
Hate Groups In The U.S. Are Flourishing
What We Read Today 23 March 2017
Investing Blog
Early Headlines: Asia Stocks Mixed, Dollar, Oil Up, Gold Down, Health Care Vote Today, Calif. Solar, Russia And Poison, Mumbai Bridge, Sanctions Cause Suffering In N. Korea, And More
Tesla Is Playing The Long Game
Opinion Blog
Time To Stop Rewarding Economists For Bad Behaviour
The American Dream: An Endangered Ethos
Precious Metals Blog
These Gold Stocks Will Produce Much Bigger Gains Than Gold Itself
Live Markets
24Mar2017 Pre-Market Commentary: Looks Like Markets Will Flatline
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































 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 - 2017 Econintersect LLC - all rights reserved