Washington, London, Tokyo: Central banks in limelight as battle continues

Policymakers will look to counter global economic risks in coming week


Reuters March 12, 2016
US Federal Reserve. PHOTO: REUTERS

FRANKFURT: Central banks take centre stage in the coming week as policymakers from Washington to London and Tokyo battle slowing global growth, heightened market volatility and deflationary pressures.

Coming after the European Central Bank’s massive stimulus package, the US Federal Reserve must resolve conflicting economic drivers while the Bank of England will take a cautious line ahead of a defining vote on European Union (EU) membership.

A standout in an otherwise wobbly world economy, even the US is facing growing headwinds, primarily from trade and weak emerging markets. That is likely to stay the Fed’s hand on Wednesday and push out its next hike, possibly to June, even as it maintains a tightening bias.

“Overall, the message from the Fed will likely be a pause to assess uncertainties and gather more evidence, but no shift in strategy, or medium term view: act soft, talk tough,” BNP Paribas said in a note.

While the Fed has hinted at four 25-basis-point rate hikes this year, markets see just one increase in the second half, leaving an unusually big gap between market expectations and the central bank’s guidance.

Fuelling the doves’ case, the Cleveland Fed’s Financial Stress Indicator briefly showed its highest warning level in recent weeks, pointing to significant risk. Business surveys have also pointed to growing worries while exports are facing challenges from a strong dollar.

But unemployment continues to fall, housing activity is high, the labour market is tightening and household consumption is rising, all indicating that the real economy is performing broadly as the Fed has predicted.

Published in The Express Tribune, March 13th, 2016.

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