Experts: the 2018 perspective for the main central banks


By Mohamed A El-Erian

With the continued synchronized surge in global growth, central banks of systemic importance will probably be more willing and able by 2018 to begin and, in one case continue, the normalization of policy monetary But what is true for the central banking community as a whole is more nuanced when evaluated at the level of individual institutions. Here is the perspective in ascending degrees of policy difficulty and, therefore, of the risks of policy errors.

The Federal Reserve of the EE. UU It is the most advanced in the policy normalization process. It has halted its unconventional program of securities purchases, raised rates four times and established a plan for the gradual reduction of its balance.

It is likely that the Federal Reserve enters in 2018 with another rise in its credit and a larger window to normalize due to the tax measures that pbad through Congress. As such, the markets may need to revise upward their implicit pricing of the Fed's actions to be more consistent with the projection of two or three additional rate increases next year. And, within the context of the "beautiful normalization" underway, such revisions will not necessarily have to be detrimental to financial stability or economic growth.

One complexity that the Federal Reserve faces is that, when it comes to yields on maturing bonds with longer dates and the shape of the yield curve, the unconventional policies applied by their peers in other parts of the advanced world continue being an important influence. There, the degree of policy difficulties is noticeably higher.

The Bank of Japan will face pressure to lift its foot off the stimulus accelerator. In addition to having to think more seriously about the moderation of its badet purchase program, the bank will probably take steps next year to revise its 10-year yield target (currently 0%); and you should sequence this carefully with a reduction in unconventional purchases. The ease with which it is implemented will depend to a large extent on whether the stronger internal political situation of PM Shinzo Abe allows the implementation of long-delayed structural reforms (what, in the Japanese context, has been called "the third arrow").

The European Central Bank will try to maintain its plan of halving monthly purchases to 30 billion euros ($ 34 billion) through September, a prelude to ending the large-scale purchase program before taking out the rates of negative territory policy interest. But judging by the minutes recently published by the ECB, it is said that the members of the Governing Board have different opinions, and the bank could find itself in the difficult position of having to change its anticipated orientation by accelerating the phasing out of QE, especially if inflation recovered faster than currently expected.

However difficult it may be, especially for a central bank that establishes policies for 19 member countries, the complexities could be less than those faced by the monetary stance of the United Kingdom.

With the growth outlook revised downward and with inflation well above the target, the Bank of England is in a political dilemma, particularly after being forced to raise this year for the first time in about 10 years . Responding to the overshoot of persistent inflation through a walk again runs the risk of deepening the economic slowdown. Delaying the rise and inflationary expectations could worsen. And all this before you consider the Brexit uncertainty.

Putting all this together, there is good news for the global economy: the world's most powerful central bank, the Fed, faces the least relative degree of policy difficulty (and in the process, could restore greater political flexibility to counteract the risk of possible growth and inflation deficit in the future). Another relatively bright point is that the greatest complexity faces the least systemic within the group: the Bank of England.

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