0414 GMT November 22, 2019
That’s the conclusion investors are reaching as the Federal Reserve and its counterparts in Japan and the euro area convene for pivotal meetings this week amid signs the world economy is ushering in a new period of easier monetary policy.
“We all worry about slow growth,” Tony Crescenzi, market strategist at Pacific Investment Management Co., told Bloomberg Television on Friday.
“We would project that interest rates for central banks will stay low for at least the next five years.”
What Pimco has long dubbed the ‘new normal’ is reflected in calculations by JPMorgan Chase & Co. economists. Their measure of the average global interest rate reached a high of 2.82 percent in early February.
Having once expected it to end the year at three percent, they now see it falling to 2.5 percent in December, led by cuts from the Fed. Russia, India, Chile and Australia are among those to have already loosened policy.
JPMorgan sees its measure of the average global interest rate at 2.5 percent in December.
Behind the reversal are escalating trade wars, skittish financial markets, weakening demand and soggy inflation.
Bloomberg economist Dan Hanson’s nowcast shows global growth running at 2.6 percent in the second quarter, down from 4.7 percent at the start of 2018. Structural trends such as rising debt and aging populations will also serve to contain borrowing costs.
The key questions for the central bankers are when they will start cutting and how deeply can they actually go as they again seek to rescue economies with less ammunition than they once had and with governments preoccupied by clashes over trade and lacking the willingness to loosen budgets.
Insight will hopefully come on Wednesday when Fed Chairman Jerome Powell and colleagues conclude their latest round of policy discussions. Investors are primed for them to indicate a willingness to cut the US benchmark in coming months.
There remains division over the outlook. Deutsche Bank AG sees action in July, while JPMorgan is saying September. Goldman Sachs Group Inc. joins Bloomberg Economics and Citigroup Inc. in reckoning the Fed will merely stay steady through 2019.
At least the Fed created room for stimulus by hiking rates in recent years. That’s more than can be said of the European Central Bank and Bank of Japan whose interest rates remain in negative territory.
ECB President Mario Draghi and colleagues gather from June 17 for a conference in the Portuguese town Sintra, while Governor Haruhiko Kuroda and fellow BoJ policy makers meet on Thursday with no change expected.
Other central banks meeting next week include those of the UK, Brazil, Indonesia and the Philippines. Interestingly, the Norges Bank may buck the trend by hiking rates on Thursday.