Global Monetary Policies Remain Accommodative, Fed Minutes Under Review By Reuters

By Ross Finley

LONDON – The delicate balance between an aggressive global monetary policy and a struggling world economy, combined with record highs in stock markets and unprecedented low bond yields, is expected to remain stable in the coming week.

The primary factor that could disrupt this equilibrium is a change in stance from the U.S. Federal Reserve, which is still contemplating its next interest rate hike following a modest increase in December.

The minutes from the Fed’s July policy meeting, set to be released on Wednesday, will likely receive heightened attention. The central bank has one more chance to raise rates before the November presidential election at its upcoming meeting.

Throughout this year, Fed officials have offered mixed and often contradictory signals about when the next rate adjustment might occur, leaving many unclear about the likelihood of a rate hike in September.

Market expectations, based on interest rate futures and a recent survey of economists, indicate that the probability of a September hike is low, with December appearing to be a more likely option.

Economist Lou Crandall noted in a recent report that the odds of a 2016 rate hike might increase as the month progresses, particularly with upcoming insights from the FOMC minutes and Chair Janet Yellen’s speech at Jackson Hole.

In the meantime, some Fed officials have indicated that a rate hike could happen this year. For instance, San Francisco Fed President John Williams expressed in an interview that he anticipates a gradual pace of hikes.

However, with substantial cash inflows from the European Central Bank, Bank of Japan, and now the Bank of England, the Fed seems to be aligning itself with the current global monetary trends.

A troubling reality for central bankers is that despite years of emergency monetary policies, there is limited growth and almost no inflation in most developed economies, aside from sharp increases in asset prices.

Economists at BNP Paribas suggest that the failure of exceptionally loose monetary policy to stimulate global growth after the financial crisis signifies that fiscal policies might have been more effective in supporting expansion.

Until broader fiscal measures are adopted, central banks will continue to navigate the economic landscape.

The Reserve Bank of New Zealand, facing subdued inflation aside from surging housing prices, recently lowered its interest rate to weaken its currency, but this inadvertently strengthened it instead.

In the U.K., inflation figures expected this week are likely to reflect minimal price pressure. However, a surge of inflation above 3 percent could be on the horizon, driven by the significant decline in the pound following the vote to leave the European Union, impacting an economy that imports more than it exports.

Brexit could become a disinflationary force in the short term, potentially harming trading partners and contributing to a widely anticipated mild recession in the U.K.

The latest claimant count figures will also be scrutinized as they represent the first official data on the job market since the Brexit decision, with many expecting the current low unemployment rate of 4.9 percent to rise soon.

Economist Victoria Clarke noted that recent reports indicate a sharp decline in permanent hiring in the U.K. job market.

Further retail sales data is set to be released later this week, though surveys suggest that sales have remained relatively stable since the referendum.

Japan is also preparing to release its second-quarter economic growth figures, with analysts predicting a lackluster annualized growth rate of only 0.7 percent, despite years of stimulus efforts.

This growth forecast represents less than half of the 1.9 percent rate recorded in the first three months of the year, mirroring a slowdown observed in the eurozone.