Aller au contenu

The monetary hawk, an endangered species

Image de François Christen

François Christen

Chief Economist

Increasing central bank dovishness pushed US and European government bond yields lower.

Original article published in French on agefi.com

Four major central banks focused attention last week. The first of these was the Bank of Japan, which put an end to all the unconventional measures implemented in recent years. The era of negative interest rates ended with the federal funds rate rising from -0.1% to target between 0% and 0.1%. The “Yield Curve Control” program was terminated, but the central bank had no plans to reduce its purchases of government bonds (JGBs), although it did abandon its purchases of risky assets (ETFs, real estate funds, corporate bonds and debt). A symbolic milestone has thus been passed, but the Bank of Japan continues to pursue an accommodating policy and did not signal any further rate hikes. The shift was gradual, to say the least, and had virtually no impact on bond yields, while putting pressure on the Yen.

Unsurprisingly, the US Federal Reserve left its key interest rate unchanged and reaffirmed its willingness to be patient. The updated economic projections and Jerome Powell’s friendly words did, however, capture attention. The central banker downplayed the persistence of inflation observed at the start of the year. In addition, the median forecast of the nineteen FOMC members is still for a Fed funds rate cut to 4.6% by the end of 2024. However, the median of projection masks a large minority of nine participants who are predicting more modest easing, or even maintaining the status quo until the end of the year. The path of interest rates remains uncertain and dependent on future data. Recent events do not argue in favour of a rapid, large-scale reversal, but rather for a gradual normalization, postponed until the third quarter. In the end, Jerome Powell’s balanced message prompted a small decline in bond yields and triggered an enthusiastic reaction in an equity market that reached new highs.

In Europe, the Swiss National Bank contradicted most forecasts by cutting its key interest rate from 1.75% to 1.5%. Carried out a little earlier than expected, this move was justified by the slowdown in inflation and the appreciation of the Swiss franc in real terms. The SNB’s downwardly revised inflation forecasts and Thomas Jordan’s statements seem to herald a further reduction in rates. Yields have fallen to such an extent that Swiss franc bonds have lost much of their appeal, which they briefly regained at the end of 2022.

In the UK, the Bank of England maintained the status quo with a strong majority of eight to one (voting for a rate cut). The two “hawks” who voted for a rate hike on February 1 have fallen into line, but the committee will wait for further signs of disinflation before starting to cut rates, probably in the second half of the year.

As for the eurozone, Christine Lagarde has explicitly announced the prospect of an interest rate cut on June 6th, provided that the scenario expected by the ECB is corroborated by incoming data. The slowdown in wage inflation observed in the fourth quarter of 2023 and the improvement in the business climate tend to validate the optimism that has driven the Stoxx 50 index to its highest level in almost 24 years.

USflag Macro

The hawks are sleepy, the vigilantes are waking up

The Federal Reserve's dovish stance and the prospect of a Donald Trump victory undermine bonds.
En savoir plus →
integrity Corporate Social Responsibility

Durabilité et intégrité

Dans un contexte où le risque d’écoblanchiment est de plus en plus scruté par les autorités de surveillance, notamment au sein du secteur financier, nul ...
En savoir plus →
fedusa Macro

Economic data validate Fed’s plans

Defying predictions of any sort of landing, the US economy continues to fly at high altitude.
En savoir plus →
quant Investment

Portefeuilles indiciels : Quand la simplicité cache des défis majeurs

La gestion indicielle a conquis les investisseurs institutionnels avec ses promesses tenues d’efficacité à moindre coût, mais derrière ces bénéfices se cachent des défis souvent ...
En savoir plus →
powell Macro

Les taux baissent, les rendements s’élèvent

La décision de la Fed d’entamer le cycle par un geste audacieux a fragilisé les emprunts à long terme.
En savoir plus →
Happy female jogger standing and enjoying in beautiful river sunrise. Winning gesticulation with hands up. View from the back. Corporate Social Responsibility

Durabilité et détermination

L’un des facteurs-clés de succès d’une démarche de durabilité consiste à définir une stratégie à long terme, fruit d’une forte conviction du top management et ...
En savoir plus →
fedusa Macro

Nick and Greg blur the lines

Perceived as the Fed's informal transmission channels, two journalists reverse expectations
En savoir plus →
9781510202504 Macro

Goldilocks is alive and kicking

US macroeconomic environment still too favourable to justify large and rapid rate cuts.
En savoir plus →
FED, Federal Reserve with interest rate cut concept, small cube block with alphabet building the word CUT next to Federal Reserve emblem on US Dollar banknote Macro

Silent approval or wrong signal?

Jerome Powell made no attempt to contradict expectations of rapid and large interest rate cuts.
En savoir plus →
athlete woman exercise in morning, Young fitness woman stretching muscle against mountain view, warm up ready for running or jogging. Workout, wellbeing and sport girl concepts Corporate Social Responsibility

Durabilité et agilité

Être agile, c’est savoir faire preuve de réactivité, dans un temps court, et ce, pour répondre efficacement et rapidement aux changements tout en limitant les ...
En savoir plus →