Central Bank Week | June 15, 2018

While the Singapore Summit garnished headlines, central banks across the globes moved Markets!

The Federal Reserve Bank (FRB) reported the results of their two-day meeting on Wednesday. They increased the Fed Funds Rate from a range of 1.75% to 2%. More importantly, they increased the outlook for the remainder of the year to reflect four hikes in 2018 rather than three. They have also removed key language from their statement that indicated that the FRB would remain accommodative. This signals a transition to more hawkish FRB policy.

The European Central Bank (ECB) announced the result of their much-anticipated meeting on Thursday. The anxiety around this meeting stems from recent issues in Italy and slowing growth in the Eurozone. Italy’s recently formed government is decidedly anti-European Union (EU) and growth in the EU has back off of its heated rate from 2017. The ECB had originally intended to end their quantitative easing (QE) program in September. They have now deferred the end to December. While this shows a weakening belief in the strength of the EU recovery, it does give definition to the end of the QE cycle.

The Central Bank of Japan reported its meeting results on Thursday as well.  With both the FRB and ECB showing signs of tightening monetary policy, the fear of Japan following suit increased. They appeased the markets by indicating that their accommodative pattern will continue with no end in sight. This makes sense given their negative rate of GDP in the 1st quarter. If the 2nd quarter were to come in at a negative rate as well, they would officially be in a recession.

The data central banks provided us last week largely pointed towards continued growth; though incumbered. As central banks tighten the belt, so must corporations, as debt obligations increase. So, while 2nd quarter GDP is shaping up to be strong, look for slowing growth in the remainder of the year. One, higher debt obligations and two, increased costs due to tariffs.

 

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