Central banks – slow motion exit

- Central banks. "The global economy is losing momentum, while worldwide growth risks are on the rise. This benefits not only safe-haven investments like gold and government bonds but also money market rates, which will stay extremely low for an extended period. It will likely be late 2011 or early 2012 before major central banks start hiking rates, while the exit from the ultra-expansive liquidity policy is being pushed back."
- US. "Here, it is primarily the growth risks, i.e. the fear of a double-dip recession, that prompted the Fed to adopt a more cautious stance when it announced that it would reinvest all the proceeds from maturing and prepaid agency debt and MBS in longer-term Treasuries."
- Fed. "The US central bank has, therefore, not only abandoned its slight tightening bias but also opened the door again to additional quantitative easing measures. Things should not, however, go that far: Additional purchases of Treasury securities would lower the yield level only marginally. Moreover, the transmission channels of lower interest rates to the real economy are already clogged (pages 6-9)."
- EMU. "Here, it is still the ongoing sovereign debt crisis, the again surfacing concerns about the solidity of banks, and the strong real economic divergence that are making the central bank more cautious."
- ECB. "As a result, the European Central Bank will not be able to forge ahead, as planned, with its exit strategy, which would even not have to be completed before the first rate hike, not expected before the end of next year (pages 10-12)."

Unicredit Friday Notes 20100917

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