Short Comment
Huge policy making days had proceeded: Federal Reserve and Bank of Japan providing the liquidity to the markets. The main point is that they have not followed what market participants want. However, US Treasuries were showing bullish momentum last Friday, with the concern from trade-war between G2.
US Federal Reserve decided to lower its policy rate by 25bp on September meeting. It was exactly what market participants expected. However, followed messages from Jerome Powell, Chairman of the institution, were disappointing the markets. He made sure that the decision was an insurance for coming economic recession again, denying the possibility of negative policy rate. US President Donald Trump grilled him about it, but he does not care about Mr. Trump's want.
His messages have been consistent. US economy is still good enough, no needing radical down of the rate. He mentioned about several downside risks the economy is facing, but the participants do not give huge weight for it. The important point is that the markets cannot expect 50-100bp down of the rate, which the markets and Mr. Trump strongly want. Instead, REPO facility the institution introduced as new instrument to provide short-term liquidity to the markets would be assisting tool to relieve the nervous markets. It will keep providing short-term liquidity with scale of $70-80billion until early next month.
Huge policy making days had proceeded: Federal Reserve and Bank of Japan providing the liquidity to the markets. The main point is that they have not followed what market participants want. However, US Treasuries were showing bullish momentum last Friday, with the concern from trade-war between G2.
US Federal Reserve decided to lower its policy rate by 25bp on September meeting. It was exactly what market participants expected. However, followed messages from Jerome Powell, Chairman of the institution, were disappointing the markets. He made sure that the decision was an insurance for coming economic recession again, denying the possibility of negative policy rate. US President Donald Trump grilled him about it, but he does not care about Mr. Trump's want.
His messages have been consistent. US economy is still good enough, no needing radical down of the rate. He mentioned about several downside risks the economy is facing, but the participants do not give huge weight for it. The important point is that the markets cannot expect 50-100bp down of the rate, which the markets and Mr. Trump strongly want. Instead, REPO facility the institution introduced as new instrument to provide short-term liquidity to the markets would be assisting tool to relieve the nervous markets. It will keep providing short-term liquidity with scale of $70-80billion until early next month.
I believe that Mr. Powell made it sure that the institution would not use the last resorts too early. The markets are expecting that the institution could lower the rate fast if the recession came up faster than expected. The concern for the trade-war coming up again cannot make the change for it at this point.
There was other biggest central bank's determination for this week. Last Thursday, Bank of Japan decided to freeze its policy. Its policy rate is -0.1%. The amount of buying bonds does not change too from last decision. Everyone was expecting that the institution could lower the policy rate, following European Central Bank's decision last week. The participants were ignoring the institution's decision for the amount of providing the liquidity to the markets a few weeks ago. Considering political stance of Mr. Abe and relevance between politics and economics in the country, we cannot expect huge Quantitative Easing in near future. Mr. Abe has wanted to avoid complaints from Mr. Trump.
I cannot understand why the participants are not interpreting the messages of the institutions as they have been. US Federal Reserve has kept sending consistent messages: US economic situation is good enough no needing to lower the policy rate fast. Bank of Japan decreased the amount of buying bonds in the markets. The participants do not believe its messages even though they are credible enough.